White House agrees to forgive student loans; millions of borrowers to get debt relief

The Trump administration announced a major policy shift 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), under which the White House will begin processing student loan forgiveness for eligible borrowers, New York Post reported. Who is eligible to reap the benefits? Borrowers enrolled in two specific income-driven repayment plans, Income Contingent Repayment and Pay As You Earn, can receive student loan forgiveness under the new policy. These programs calculate monthly payments based on a borrower’s salary, and typically cancel any remaining debt after 20 or 25 years. The administration earlier paused student loan forgiveness under these income-driven repayment plans, citing a court order that affected the Save on a Value Education (SAVE) plan. President Trump’s “Big, Beautiful Bill” would phase out the two programs by July 1, 2028, with more than 2.5 million enrollees in these two plans combined, a higher education expert told the New York Post. Tax implications addressed A key aspect of Friday’s agreement in the AFT v. US Department of Education case is that borrowers eligible for student loan forgiveness this year will not owe federal taxes on the relief, the Trump administration said. “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 acted as counsel for the teachers union. Background to the dispute The agreement resolves an issue stemming from a lawsuit filed in March by the AFT – which represents about 1.8 million union members. The union accused Trump officials of preventing federal student loan holders from accessing programs that were active when they initially borrowed. Trump’s Education Department, headed by Linda McMahon, justified blocking these programs, citing a court order that halted the Biden-era Saving on a Valuable Education plan, or SAVE plan, which is another income-driven repayment program. This temporary block has left borrowers with only one repayment plan option, which is an 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 the potential harm to borrowers. Limiting repayment options — including the planned end of SAVE — could drastically increase monthly student loan payments for a typical borrower by hundreds of dollars, based on an analysis by the nonprofit Student Borrower Protection Research Center.