On Friday, the Trump administration reached a joint agreement with the American Federation of Teachers (AFT) to revive a student loan forgiveness plan that had faced legal challenges.
As part of this agreement, the Department of Education will start canceling student loans for borrowers who are part of income-driven repayment plans, as reported.
Winston Berkman-Breen, the Legal Director of Protect Borrowers, expressed that this is a significant victory for borrowers, providing much-needed peace of mind.
The AFT had previously sued the Trump administration in March. They claimed that the Department of Education had obstructed students with loan debts from utilizing the forgiveness program that was in place at the time they took out their loans.
Earlier this year, the administration had halted the student loan forgiveness options under certain income-driven repayment (IDR) plans. These plans typically adjust a borrower’s monthly payments based on their income and family size, with some allowing forgiveness of any remaining balance after a specific number of payments.
The Department of Education initially argued that it could pause the program due to a court order affecting another income-driven repayment initiative from the Biden administration.
During this pause, borrowers had only one repayment option left that led to forgiveness, known as the income-based repayment plan (IBR).
After several months of legal proceedings, the Trump administration decided to negotiate an agreement with AFT to reinstate the IDR program.
According to AFT President Randi Weingarten, this agreement marks a significant win in their long campaign for fair treatment of student loan borrowers. She mentioned that the organization fought against the administration when they initially denied relief owed to borrowers, adding that this arrangement provides either immediate relief or a sense of hope for those stuck in debt.
This new agreement will impact all borrowers connected with the AFT, covering various repayment plans and the Public Service Loan Forgiveness Program.
Eligible borrowers will need to make a specific number of required minimum payments before their debts can be forgiven. Additionally, the Trump administration has agreed to refund borrowers who paid more than necessary prior to becoming eligible for cancellation.
The government will also process applications for IDR and PSLF repayment, including for borrowers who do not meet the previously required conditions of partial financial hardship.
Importantly, borrowers eligible for forgiveness in 2025 will not face federal taxes on their forgiven loans. Under current tax regulations, those whose loans are forgiven post-2026 would be taxed on that forgiven amount. The new agreement ensures that the eligibility date remains based on when borrowers first qualified for forgiveness, rather than when the government processes their plans.
Approval from the court is necessary for the collaborative agreement to take effect, though a timeline for this approval isn’t currently known.
If the agreement is sanctioned, the Trump administration will have to submit a report every six months detailing the processing of the loan cancellations.
The case is titled American Federation of Teachers v. U.S. Department of Education No. 1:25-cv-802, filed in the U.S. District Court for the District of Columbia.
