A big turnaround for borrowers
The Trump administration announced that it will cancel student debt for millions of Americans — a major change from its earlier efforts to block certain loan forgiveness programmes.
In a new agreement with the American Federation of Teachers (AFT), the White House said it will restart the process of forgiving loans for eligible borrowers under two income-driven repayment (IDR) plans: Income-Contingent Repayment (ICR) and Pay As You Earn (PAYE).
These programs let borrowers make payments based on their income and forgive the remaining balance after 20 or 25 years. According to higher education experts, more than 2.5 million people are currently enrolled in these two plans.
However, these programs are not permanent. President Trump’s proposed “Big, Beautiful Bill” will phase them out by July 1, 2028.
“A tremendous win for borrowers”
Borrower advocates are celebrating the announcement.
“This is a tremendous win for borrowers. With today’s filing, borrowers can rest a little easier,” said Winston Berkman-Breen, legal director for Protect Borrowers, which represented the teachers’ union.
He explained that the Department of Education has now agreed to follow the law and provide affordable payments and debt relief to hard-working public service employees. “We fully intend to hold them to their word,” he added.
Under the deal, borrowers who qualify for forgiveness this year will also get tax-free relief, meaning they won’t have to pay federal income taxes on the amount forgiven — a major benefit for those receiving large cancellations.
Read this later: What changes have been made to student loans and how does it affect borrowers?
What the lawsuit was about
The AFT, which represents about 1.8 million members, filed a lawsuit in March accusing the Trump administration of blocking borrowers from accessing loan forgiveness programs that existed when they first took out their federal loans.
Earlier this year, the administration had paused loan forgiveness under some income-driven repayment plans, saying it needed to review them following a separate court ruling.
These repayment programs base monthly payments on the borrower’s income and family size, typically forgiving any remaining balance after two decades of payments. The pause had left many borrowers with limited repayment options and no clear path to cancellation.
Why the pause happened
The Trump administration’s Education Department, led by Secretary Linda McMahon, argued that it could temporarily stop processing certain forgiveness programs because of a court order involving another repayment plan — the Saving on a Valuable Education (SAVE) plan, which was created during the Biden administration.
When SAVE was paused, the Department said it had to review other IDR programs as well, leaving the Income-Based Repayment (IBR) plan as the only active route to forgiveness.
Consumer advocates warned that this would raise costs for many borrowers. The Student Borrower Protection Center, a nonprofit research group, said ending SAVE and limiting other repayment options could cause the average borrower’s monthly payment to jump by hundreds of dollars.
You might want to read this later: Student loan borrowers face growing delinquency crisis as situation turns urgent.
What happens next
Under the new agreement, the Department of Education will restart loan forgiveness processing under the ICR and PAYE programs. Borrowers who qualify this year will receive forgiveness and won’t owe taxes on the relief.
The settlement also puts the Department under court supervision, meaning the AFT and borrower advocates will monitor the process closely to make sure the administration keeps its promises.
The Education Department has not yet said exactly when borrowers will begin receiving cancellation notices, but consumer advocates expect updates within the next few months.
What borrowers should know?
If you’re enrolled in either the Income-Contingent Repayment or Pay As You Earn plan, you may soon qualify for forgiveness. Borrowers are advised to:
- Check their loan servicer’s website for updates.
- Make sure their income and employment information are current.
- Watch for any official notices from the Department of Education about the new process.
