The Trump administration will resume processing student loan forgiveness for eligible borrowers in Income-Contingent Repayment (ICR) and Pay as You Earn (PAYE) plans.
This agreement impacts over 2.5 million borrowers enrolled in ICR and PAYE.
Borrowers who become eligible for student loan forgiveness in 2025 will not owe federal taxes on the relief.
Why this matters: This agreement provides much-needed relief to borrowers struggling with student loan debt and ensures they receive the forgiveness they are entitled to under existing programs. It also clarifies the tax implications of loan forgiveness for the current year.
The agreement between the Trump administration and the AFT resolves a lawsuit filed by the union, which accused officials of improperly blocking federal student loan holders from accessing programs mandated in their original borrowing terms. The administration had previously paused loan forgiveness under some income-driven repayment plans, citing a court order related to the Biden administration’s SAVE plan.
Under the agreement, the administration clarified that borrowers eligible for forgiveness in 2025 will not owe federal taxes on the relief, addressing concerns raised as Trump’s “Big, Beautiful Bill” is slated to phase out ICR and PAYE by July 1, 2028.
How to Prepare:
Borrowers should confirm their enrollment in ICR or PAYE plans.
Keep detailed records of payments and eligibility requirements.
Consult with a financial advisor to understand the tax implications and long-term financial planning.
Who This Affects Most:
Public service workers.
Borrowers with low discretionary income.
Individuals relying on income-driven repayment plans for eventual loan forgiveness.
Q: What are Income-Contingent Repayment (ICR) and Pay As You Earn (PAYE) plans?
These are income-driven repayment plans that set a borrower's monthly payment at a share of their discretionary income and cancel any remaining debt after a certain period (typically 20 or 25 years).
Q: What happens after July 1, 2028, when ICR and PAYE are phased out?
Borrowers should explore alternative repayment options and consult with financial advisors to prepare for the changes.
The Trump administration will resume processing student loan forgiveness for ICR and PAYE plans.
Borrowers eligible for forgiveness in 2025 will not owe federal taxes on the relief.
Stay informed about changes to repayment plans and consult with financial advisors for personalized guidance.
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