Photo: JJ Gouin / iStock / Getty Images
In a landmark agreement, the Trump administration has consented to a court-supervised plan to expedite student loan forgiveness under income-driven repayment programs. This decision resolves months of legal disputes between the administration and the American Federation of Teachers (AFT). The agreement, part of the AFT v. U.S. Department of Education case, ensures that borrowers will not face unexpected tax bills next year due to bureaucratic delays.
The agreement mandates the U.S. Department of Education to cancel student debt for eligible borrowers enrolled in programs like Income-Driven Repayment (IDR), Income-Contingent Repayment, Pay As You Earn, and Public Service Loan Forgiveness (PSLF). Borrowers who make payments after becoming eligible for cancellation will be reimbursed. Additionally, those whose loans are canceled by December 31, 2025, will not receive IRS forms treating the forgiven balances as taxable income, preventing a potential "tax bomb" in 2026.
The agreement is seen as a significant victory for borrowers, offering immediate relief and ensuring that they will not be taxed on the forgiven debt. AFT President Randi Weingarten stated, "For nearly a decade, the AFT has fought for the rights of student loan borrowers to be freed from the shackles of unjust debt."
The Trump administration is required to submit six monthly progress reports to the court, detailing the pace of application processing and loan discharges. The agreement is still awaiting court approval, but it represents a critical step in providing relief to millions of borrowers.
Currently, there are more than 2.5 million borrowers enrolled in the affected repayment plans. The AFT, representing 1.8 million members, filed the lawsuit in March 2025 after the administration halted IDR enrollment and processing. The administration's commitment to resume processing and canceling debt marks a pivotal shift in policy.
The AFT emphasized the importance of this agreement in preventing borrowers from being penalized due to government delays.