Trump administration restores student loan forgiveness for millions of borrowers

The Trump administration has decided to reinstate student loan forgiveness under programs it had previously limited, clearing the way for millions of Americans to once again access debt relief.

The move follows an agreement between the US Department of Education and the American Federation of Teachers (AFT), one of the nation’s largest labor unions.

Under the agreement, the Education Department will resume processing loan forgiveness for qualified borrowers in two income-driven repayment programs: the Income-Contingent Repayment (ICR) plan and the Pay As You Earn (PAYE) plan.

President Donald Trump's pending legislation proposes to phase out these programs on July 1, 2028.

Legal advocates for borrowers called the decision a major victory for public service employees, emphasizing that it compels the Education Department to comply with federal law and uphold debt relief commitments established by Congress.

Currently, the agreement has a broad impact, with an estimated 2.5 million borrowers enrolled in either ICR or PAYE.

The AFT, which represents roughly 1.8 million educators and other professionals, had sued the Trump administration earlier this year, alleging that officials unlawfully restricted access to forgiveness programs promised in original loan terms.

Student loan forgiveness had been on hold for certain income-driven repayment plans after the administration cited court rulings as justification.

These repayment plans cap monthly payments based on income, with remaining debt canceled after 20 to 25 years.

The Department of Education argued that a court injunction blocking the Biden-era Saving on a Valuable Education (SAVE) plan also applied to other repayment programs.

Borrower advocates said that interpretation was overly expansive, effectively shutting down access to forgiveness except under the Income-Based Repayment (IBR) plan. Processing under IBR was also briefly suspended but later resumed.

The agreement further clarifies that borrowers receiving loan forgiveness in 2025 will not be required to pay federal taxes on the canceled amounts.

Current law allows federal tax-free treatment for forgiven student loans, although that exemption is set to expire at the end of this year.

The decision marks a return to stability for borrowers who have faced years of shifting rules and pauses in relief programs.

It ensures that income-driven repayment plans continue to function as intended, providing a pathway out of long-term student debt for millions of Americans.