In a significant shift in student loan policy, the Trump administration has announced plans to reignite and expedite student loan forgiveness for eligible borrowers enrolled in income-driven repayment (IDR) programs. This change comes as part of a legal settlement with the American Federation of Teachers (AFT), heralding a crucial victory for many borrowers who have faced uncertainty due to previous administrative interventions and ongoing legal disputes.
The agreement, revealed in October 2025, mandates that the Department of Education resume processing loan cancellations under key IDR plans, such as Income-Contingent Repayment (ICR) and Pay As You Earn (PAYE). Currently, over 2.5 million borrowers are part of these programs, where remaining student debt can be forgiven after 20 to 25 years of qualifying payments, depending on specific program criteria and loan origination dates.
This development follows a lawsuit filed by the AFT in March 2025 that accused the Education Department of obstructing borrower access to forgiveness options available at the time of loan origination, thereby violating borrower rights. The lawsuit claimed that the administration’s suspension of forgiveness programs was unlawful.
A noteworthy aspect of the settlement is a provision ensuring that borrowers qualifying for forgiveness this year will not incur federal taxes on the canceled debt. This measure is designed to protect borrowers from what experts describe as a potential “tax bomb,” as forgiven debt processed after 2025 would typically be classified as taxable income under a new federal law effective in 2026, which could lead to heavy financial implications for many.
Winston Berkman-Breen, the legal director for Protect Borrowers, which represented the AFT, described the agreement as a “tremendous win for borrowers,” highlighting the relief and reassurance it brings. AFT President Randi Weingarten recognized the union’s longstanding commitment to advocating debt relief and welcomed this immediate assistance for those previously entangled in procedural hurdles.
Additionally, the settlement stipulates that borrowers who made extra qualifying payments before their eligibility for cancellation will receive refunds. The administration is also set to reinstate loan discharge processing and will provide monthly updates to the court on the progress of implementing forgiveness.
Earlier in the year, some forgiveness programs were temporarily halted by the Trump administration while awaiting court outcomes related to the Biden-era Saving on a Valuable Education (SAVE) plan. However, this new settlement underscores the commitment to uphold borrower rights and ensure adherence to federal laws.
It is worth noting that the targeted income-driven repayment programs are set to be phased out by July 2028 as part of the Trump administration’s “Big, Beautiful Bill” legislative framework, highlighting the critical importance of this interim relief for millions struggling with student debt.
Eligible borrowers are encouraged to confirm their enrollment and eligibility by accessing their federal loan accounts through official online portals and remain updated about the resumption of the forgiveness process. This development not only provides hope for those affected by student debt but also reflects a broader commitment to address the pressing financial challenges that many borrowers face.