Trump administration reopens student loan forgiveness, millions of borrowers set to benefit
The Trump administration has agreed to resume student loan forgiveness under programs it had previously restricted, reopening a pathway to debt relief for millions of Americans. The development follows an agreement reached between the U.S. Department of Education and the American Federation of Teachers (AFT), one of the largest unions in the country, according to CNBC.As part of the agreement, the administration will begin processing loan forgiveness for eligible borrowers enrolled in two income-driven repayment programs: the original Income-Contingent Repayment plan (ICR) and the Pay As You Earn plan (PAYE), as long as these programs continue to exist. Both plans are scheduled to be phased out by July 1, 2028, under President Donald Trump’s proposed legislation.Legal advocates for borrowers described the decision as a significant win for public service workers, ensuring that the Education Department follows federal law and provides the debt relief mandated by Congress.Estimates suggest that over 2.5 million borrowers are currently enrolled in ICR or PAYE plans, highlighting the wide reach of the agreement.
Background on blocked student loan forgiveness
The AFT, representing about 1.8 million members, filed a lawsuit earlier this year against Trump administration officials, claiming that federal student loan holders were being denied access to forgiveness programs guaranteed under their original loan agreements.Student loan forgiveness had been paused for certain income-driven repayment plans, with the administration citing court orders as justification. These plans are designed to set monthly payments based on a borrower’s income, with remaining balances canceled after 20 to 25 years.The Department of Education argued that a court order halting the Biden-era Saving on a Valuable Education (SAVE) plan affected other income-driven repayment programs. Advocates for borrowers argued that this interpretation was overly broad, effectively leaving only the Income-Based Repayment (IBR) plan as a route to loan cancellation. Processing of IBR forgiveness was also paused temporarily but has since resumed.
Tax-free loan forgiveness
The agreement also confirms that borrowers who qualify for forgiveness in 2025 will not owe federal taxes on the canceled loans. The current law provides tax-free treatment for student debt cancellation on the federal level, though this provision is set to expire at the end of the year.The decision restores clarity for millions of borrowers navigating complex repayment programs and ensures that income-driven repayment plans continue to provide the debt relief they were originally designed to offer.
