The Trump administration announced a major policy change on Friday, saying it would cancel student debt for millions of borrowers under federal loan forgiveness plans — reopening a path the government had previously blocked.
The move comes as part of an agreement with the American Federation of Teachers (AFT) that will see the White House begin processing student loan forgiveness for eligible borrowers, the New York Post reported.
Who is eligible for benefits?
Borrowers enrolled in two specific income-driven repayment plans, income-driven repayment and pay-as-you-earn, can get student loan forgiveness under the new policy.
These programs calculate monthly payments based on the borrower’s salary and typically cancel any remaining debt after 20 or 25 years.
The administration previously suspended student loan forgiveness under these income-driven repayment plans, citing a court order that affected the Savings for a Valued Education (SAVE) plan.
President Trump’s “Big, Beautiful Bill” is set to phase out the two programs by July 1, 2028, with more than 2.5 million enrolled in the two plans combined, a higher education expert told the New York Post.
Tax implications resolved
A key aspect of Friday’s settlement in AFT’s case against the U.S. Department of Education is that borrowers who qualify for student loan forgiveness this year will not owe federal taxes on the relief, the Trump administration said.
“This is a huge win for borrowers. With today’s filing, borrowers can rest a little easier,” said Winston Berkman-Breen, legal director of Protect Borrowers, which acted as counsel to the teachers union.
Background to the dispute
The deal resolves an issue stemming from a lawsuit filed in March by the AFT — which represents about 1.8 million union members. The union has accused Trump officials of blocking federal student loan holders from accessing programs that were active when they originally borrowed.
Trump’s Department of Education, led by Linda McMahon, justified the blocking of the programs by citing a court order that suspended the Biden-era Savings for Valued Education plan, or SAVE, another income-based repayment program.
This temporary block left borrowers with only one repayment plan option, which is the Income Based Repayment Plan or IBR for loan cancellation.
As Trump’s signature tax-and-spend legislation took shape over the summer, consumer advocates warned of potential harm to borrowers. Limiting repayment options — including the planned end of SAVE — could drastically increase the typical borrower’s monthly student loan payments by hundreds of dollars, according to an analysis by the Student Borrower Protection Center, a nonprofit research organization.
