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- The Department of Education agreed to process more student-loan forgiveness claims.
- In a legal filing, the department said it would continue relief for borrowers on income-driven repayment plans.
- This agreement will prevent some borrowers from being taxed on the relief next year.
Student-loan borrowers got a rare win.
On October 17, President Donald Trump’s Department of Education reached an agreement with the American Federation of Teachers to process more student-loan forgiveness applications for borrowers on income-driven repayment plans.
Specifically, the agreement said that the department will continue processing forgiveness for borrowers who reached the payment threshold on income-based repayment plans, the original income-contingent repayment plan, and the Pay As You Earn plan as long as the plans remain in effect.
The department also agreed to continue processing buybacks for the Public Service Loan Forgiveness program, which allow borrowers to “buy back” periods of time spent in deferment or forbearance if those periods would allow them to reach their 120 payment threshold for debt relief. Borrowers would also be reimbursed for any payments they make after reaching the final payment that qualifies them for relief.
The timing of this agreement is significant. A 2021 provision in the American Rescue Plan made student-loan forgiveness tax-free through 2025, meaning that beginning January 2026, borrowers who receive relief could face thousands of dollars in new taxes.
The Department of Education agreed to allow borrowers to report the date they become eligible to have their loans discharged as the effective date of their loan discharge, rather than when the debt is formally wiped out. This means that if a borrower reaches their eligible number of payments in November but does not receive relief until January, they would not face new taxes.
Still, the agreement said that the Internal Revenue Service and the Department of Treasury — not the Department of Education — have the “final say” on whether a borrower’s relief qualifies as taxable income.
“This year, we took on the Trump administration when it refused to follow the law and denied borrowers the relief they were owed,” AFT President Randi Weingarten said in a statement. “Our agreement means that those stuck in limbo can either get immediate relief or finally see a light at the end of the tunnel. And, crucially, they won’t ever get taxed on that relief.”
A spokesperson for the Department of Education blamed litigation under the Biden administration for the processing delays.
“Thanks to the Trump Administration’s efforts to separate out the illegal loan cancellation schemes, we are able to process legitimate loan cancellations once again for borrowers who have been making payments for the requisite number of years,” the spokesperson said.
AFT, which includes members enrolled in PSLF — a program that offers debt relief to public-service workers after 10 years of qualifying payments — sued the Department of Education in March over failing to process income-driven repayment applications. The AFT amended its complaint in September to turn the case into a class-action to represent all the borrowers the union said was impacted by the delayed processing. The agreement requested that the court deny that motion. Both parties have asked the court to enter the agreement as a court order.
This agreement comes after the Trump administration resumed student-loan forgiveness for borrowers on income-based repayment plans. After pausing relief processing over the summer, Business Insider viewed multiple emails borrowers received from the administration stating that they were eligible to have their loans discharged in the coming months.
Student-loan repayment has also undergone major changes under Trump. The president’s “big beautiful” spending legislation eliminated existing income-driven repayment plans and replaced them with two options to be phased in beginning in July 2026. The administration also resumed collections on defaulted student loans in May after a five-year pause.
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