The Trump administration will resume processing student loan forgiveness for eligible borrowers in Income-Contingent Repayment (ICR) and Pay As You Earn (PAYE) plans.
More than 2.5 million borrowers are currently in either ICR or PAYE plans.
Borrowers who qualify for forgiveness in 2025 will not owe federal taxes on the canceled debt.
The agreement resolves a lawsuit filed by the AFT, which accused the administration of unlawfully blocking access to forgiveness programs.
Why this matters: This decision provides much-needed relief for millions of borrowers who were caught in limbo due to administrative delays and legal challenges. It ensures that those who have made qualifying payments under IDR plans will receive the forgiveness they were promised.
The agreement between the Trump administration and the American Federation of Teachers (AFT) marks a major turnaround in student loan policy. Previously, the administration had paused student loan forgiveness under some income-driven repayment plans, citing court orders related to the Biden-era Saving on a Valuable Education (SAVE) plan.
This settlement requires the Department of Education to restart processing loan cancellations under major IDR plans, including Income-Contingent Repayment (ICR) and Pay As You Earn (PAYE). These plans forgive remaining student debt after 20 to 25 years of qualifying payments.
A key component of the deal ensures that borrowers who qualify for forgiveness in 2025 will not owe federal taxes on the canceled debt, protecting them from a potential "tax bomb" that would have occurred under a new federal law effective 2026.
The income-driven repayment programs targeted for cancellation are scheduled for phase-out by July 2028 under the Trump administration's legislative framework, underscoring this interim relief as crucial for millions of borrowers currently burdened by student debt.
Q: Which income-driven repayment plans are affected by this agreement?
The agreement affects the Income-Contingent Repayment (ICR) and Pay As You Earn (PAYE) plans.
Q: Will borrowers have to pay federal taxes on the forgiven debt?
No, borrowers who qualify for forgiveness in 2025 will not owe federal taxes on the canceled debt.
Q: How can borrowers verify their eligibility and enrollment?
Borrowers can verify their eligibility and enrollment by accessing their federal loan accounts through official portals.
The Trump administration has agreed to resume and accelerate student loan forgiveness for millions of borrowers in income-driven repayment plans.
This agreement provides relief for borrowers who were previously blocked from accessing forgiveness programs.
Borrowers who qualify for forgiveness in 2025 will not owe federal taxes on the canceled debt.
This is an interim relief as the income-driven repayment programs are scheduled for phase-out by July 2028.
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