The Trump administration has reached a court-supervised agreement to accelerate student loan forgiveness under income-driven repayment programs, marking a major victory for borrowers.
The deal, announced Friday, resolves a long-running legal battle between the administration and the American Federation of Teachers (AFT) over delayed debt cancellations for those who have made decades of qualifying payments under federal law.
According to the AFT, the agreement – pending court approval – ensures that the Education Department will deliver debt relief to eligible borrowers in 2025 and protect them from unexpected tax liabilities caused by bureaucratic slowdowns. Borrowers whose loans are canceled on or before December 31, 2025, will not receive IRS forms treating their forgiven debt as taxable income.
AFT President Randi Weingarten called the settlement a “vindication” of the union’s decade-long fight to free borrowers from what she described as “unjust and exploitative debt.” She said the agreement provides immediate relief or a clear path toward cancellation for borrowers previously left in limbo. “Crucially, they won’t ever get taxed on that relief,” Weingarten emphasized, pledging to hold the government accountable to its commitments while continuing to push for affordable higher education and fairer student lending practices.
Under the deal, the Education Department must cancel student debt for all eligible borrowers enrolled in programs such as income-driven repayment (IDR), income-contingent repayment, Pay As You Earn, and the Public Service Loan Forgiveness (PSLF) program. Borrowers who made additional payments after becoming eligible for cancellation will be reimbursed.
The administration is also required to process IDR and PSLF “buyback” applications, including those from borrowers no longer required to demonstrate financial hardship. To ensure accountability, the Education Department must submit six monthly progress reports to the court, documenting the pace of loan discharges and application processing.
The AFT said the settlement also addresses a looming “tax bomb” that could have hit borrowers in 2026, when canceled debt will once again be treated as taxable income under federal law. Without this agreement, many borrowers whose loans were supposed to be wiped out in 2025 might have faced steep tax penalties simply due to administrative delays.
“This is a tremendous win for borrowers,” said Winston Berkman-Breen, legal director for Protect Borrowers. “With today’s filing, borrowers can rest a little easier knowing they won’t be unjustly hit with a tax bill once their student loans are finally canceled.” He added that the agreement ensures the Department of Education follows the law and delivers debt relief under court supervision, while advocacy groups stand ready to hold the government to its word.
The AFT and several individual borrowers initially filed the lawsuit in March 2025 after the Trump administration removed IDR enrollment applications from federal websites and told loan servicers to pause processing them. Although the government later reinstated the application process, it had not previously committed to canceling debts – until this agreement.
The joint status report confirming the deal was filed Friday and is awaiting final court approval. Once enacted, it is expected to benefit thousands of public service workers and long-term borrowers who have waited years for promised relief.
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