• AFT lawsuit leads to new agreement restoring income-driven repayment cancellations
• Borrowers in multiple federal repayment plans could see immediate debt relief
• Those eligible this year will not face federal taxes on forgiven debt
Millions of Americans with federal student loans could soon see long-awaited relief after the Trump administration agreed to reinstate forgiveness programs it had previously stalled.
The deal, reached with the American Federation of Teachers (AFT), allows the Department of Education to resume cancelling student debt for borrowers enrolled in income-driven repayment (IDR) plans. The agreement follows a lawsuit filed by the AFT accusing administration officials of illegally blocking access to repayment and forgiveness programs that had been in place for years.
“This is a tremendous win for borrowers,” said Winston Berkman-Breen, legal director for Protect Borrowers, which represented the teachers’ union. “With today’s filing, borrowers can rest a little easier," the New York Post reported.
What the agreement means for borrowers
Under the deal, borrowers participating in income-based, income-contingent, pay-as-you-earn, and Public Service Loan Forgiveness programs will once again qualify for cancellation after making the required number of payments.
The administration also agreed to refund borrowers who made additional payments after they had already qualified for forgiveness and to process pending “buyback” applications for both IDR and PSLF participants.
“For nearly a decade, the AFT has fought for the rights of student loan borrowers to be freed from the shackles of unjust debt—and today, a huge part of that affordability fight was vindicated,” said AFT President Randi Weingarten.
Tax relief built into the plan
Borrowers whose loans are forgiven in 2025 will not face federal taxes on the cancelled amount, the administration confirmed. Normally, debt discharged after 2025 would be treated as taxable income under current law—a change the AFT has described as a looming “tax bomb.”
To avoid that penalty, the Department of Education will treat the date borrowers become eligible for cancellation as the official date of discharge, even if paperwork delays push processing into 2026.
Next steps: court approval pending
The joint agreement still requires court approval to take legal effect. If approved, the Trump administration will be required to file six monthly reports detailing its progress on processing applications and cancellations.
The timeline for approval remains unclear, but if finalized, the deal could provide long-overdue relief for borrowers who have spent decades trapped in repayment plans.