The Donald Trump administration is having a change of heart as it agrees to cancel student loan debt for millions of borrowers after initially backing various forgiveness plans and programs.
On Friday (October 17), the Trump administration reached an agreement with the U.S. Department of Education and the American Federation of Teachers (AFT) union. The move marks the reopening of a once-partially blocked path to student loan forgiveness for millions of borrowers in America.
In the agreement, the Trump administration vowed to again process student loan forgiveness for eligible borrowers in two Income-Driven Repayment (IDR) plans. The programs include: the original Income-Contingent Repayment (ICR) plan; and the Pay As You Earn (PAYE) plan.
However, this is as long as those programs remain in effect. According to President Donald Trump’s “Big Beautiful Bill,” the administration will phase out ICR and PAYE as of July 1, 2028. According to higher education expert Mark Kantrowitz, more than 2.5 million borrowers are in either ICR or PAYE.
In the agreement, the Trump administration clarified that borrowers who become eligible for student loan forgiveness in 2025 will not owe federal taxes on the relief given. Additionally, a law banning taxes on student loan debt canceled on the federal level expires at the end of 2025. Subsequently, borrowers with cancelled debt may face a huge tax liability moving forward.
Speaking on the move, Winston Berkman-Breen, the legal director for Protect Borrowers, which served as the AFT’s legal representatives, said:
“This is a tremendous win for borrowers. With today’s filing, borrowers can rest a little easier. The U.S. Department of Education has agreed to follow the law and deliver Congressionally mandated affordable payments and debt relief to hard-working public service workers across the country, and will do so under court supervision. We fully intend to hold them to their word.”
Trump Administration Previously Partially Blocked Some Student Loan Forgiveness Plans
Earlier this year, the Trump administration paused student loan forgiveness under some Income-Driven Repayment plans. The administration claimed the move was in response to court orders. Under IDR plans, borrowers are given a monthly bill at a share of their discretionary income. The plans also cancel any remaining debt after a certain period of time, usually 20 years or 25 years.
Trump’s Education Department said that a court order — which stopped the Saving On A Valuable Education (SAVE) plan — interfered with other IDR plans. The Joe Biden Administration first implemented the SAVE plan.
In March, AFT, which represents about 1.8 million union members, filed a lawsuit against Trump officials. The suit accused them of blocking federal student loan holders from programs mandated in their original borrowing terms.
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