The Trump administration has agreed to reinstate student loan forgiveness for roughly 2.5 million borrowers enrolled in specific federal repayment plans, following a lawsuit brought by the American Federation of Teachers (AFT).
Under the settlement reached on Friday between the teachers’ union and the administration, the U.S. Department of Education will resume processing loan forgiveness for those eligible in income-based repayment schemes that reduce monthly payments according to a borrower’s earnings. The government had previously halted forgiveness under those plans, citing its interpretation of an earlier court ruling.
The agreement also ensures that borrowers will not face hefty tax bills on debt scheduled to be forgiven 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 borrowers stuck in limbo can either get immediate relief or finally see a light at the end of the tunnel.”
A spokesperson for the Education Department said the Trump administration is now reviewing existing forgiveness programmes to identify which ones were not affected by previous court decisions that had blocked much of the Biden administration’s debt cancellation efforts.
“The Administration looks forward to continuing its work to simplify the student loan repayment process through implementation of the President’s One Big Beautiful Bill Act,” the department said in a statement.
Several forgiveness programs are included
According to the deal, the Trump administration must cancel student debt for eligible borrowers enrolled in the following plans: income-driven repayment (IDR) plans, income-contingent repayment plans, Pay As You Earn (PAYE), and Public Service Loan Forgiveness (PSLF) plans.
If borrowers have made payments beyond what was needed for forgiveness, those payments will be reimbursed. The Education Department must also continue to process IDR and PSLF “buyback” applications. Balances forgiven before Dec. 31 will not be treated as taxable income, as they will in 2026 due to a recent change in tax law.
The administration must also file progress reports every six months with the court to show the pace of application processing and loan forgiveness, according to the AFT.
How many borrowers are waiting for forgiveness?
An estimated 2.5 million borrowers in IDR plans will be affected by the agreement, and another 70,000 are waiting for forgiveness through the PSLF program.
Even with the agreement in place, mass layoffs at the Education Department could factor into processing times for forgiveness, said Megan Walter, senior policy analyst at the National Association of Student Financial Aid Administrators.
If borrowers continue to make payments while their application is pending forgiveness, that will be refunded to them if they are successful, Walter said. “But keep really good records,” she said.
What are the PSLF and buyback forgiveness programs?
Public Service Loan Forgiveness, which has been in place since 2007, forgives federal student loans for borrowers who have worked at non-profit organizations or in public service after 120 payments, or 10 years. The Biden administration also created an option for borrowers to “buy back” months of payments they missed during forbearance or deferment in 2023, to allow more people to qualify for that forgiveness.
(With AP inputs)
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