Copyright news18
The Donald Trump administration, in a major policy shift, has said it will cancel student debt for millions of borrowers under federal loan forgiveness plans. According to The Washington Post, the American Federation of Teachers (AFT) and the US Department of Education reached a court‑filed settlement that revives student‑loan forgiveness processes for certain long‑standing income‑driven repayment (IDR) programmes. As part of the deal, borrowers enrolled in IDR plans such as Income‑Based Repayment (IBR), Pay As You Earn (PAYE) and Income‑Contingent Repayment (ICR) will have their applications processed for forgiveness as they become eligible. Fox Business reported that the government agreed that borrowers whose loans are cancelled in 2025 will not face federal taxes on the forgiven amount. The deal includes monthly reporting obligations to the court on how many applications are processed. Earlier in 2025, the administration had paused or restricted access to certain IDR plan enrolments and forgiveness processing, leading to legal action by the AFT. According to CNBC, the timing of the move is critical because a tax exemption for forgiven student loans under the American Rescue Plan Act expires on December 31 this year after which forgiven debt may again become taxable. Why Does It Matter? The most significant outcome of the move would be relief for millions of borrowers. The deal could restore a pathway to forgiveness for borrowers who have been waiting years despite meeting payment or service‑requirements under IDR plans. It also signals that the Department of Education is under both legal and political pressure to process relief rather than delay it indefinitely. Apart from this, one of the most consequential aspects is the removal of the “tax bomb” risk for the time being. If forgiveness occurs this year, it won’t trigger federal income tax for most borrowers under this deal. However, if it is delayed into 2026 or beyond, the forgiven amount might count as taxable income, raising significant potential liability, CNBC reported. What You Should Know Are You Eligible: If you have been enrolled in an eligible IDR plan (IBR, PAYE, ICR) and you have met the payment/years‑of‑service requirement, you may now have your application processed for forgiveness. The specifics vary by plan. If you serve in public service and qualify under Public Service Loan Forgiveness (PSLF), parts of the deal also cover “buy‑back” periods (for instance, time in forbearance or deferment that should count toward the 120 payments), The Washington Post reported. Tax Strategy: If you’re likely to qualify in 2025, filing or enrolling early may help ensure your forgiveness is counted as occurring in 2025 rather than 2026, thus avoiding the potential tax bill. Some borrowers reportedly had to “opt‑out” by a certain date in some communications from the Department. Be Meticulous: Keep detailed records of payments, plan enrolments and servicer communications. You may need to prove eligibility in case delays or disputes arise. Be Patient: Relief will not be instantaneous for all. The Department will still need to process applications, verify eligibility, and coordinate with servicers. Some backlog remains. Also, the law may change in the future, meaning the path forward might look different for new borrowers or new loans. Enrolling now or sticking with an eligible plan may help preserve your eligibility under the current framework. The Trump administration’s move is a meaningful win for many federal student loan borrowers, especially those in long‑term income‑driven repayment plans who were facing an uncertain future. The agreement restores relief pathways, shields many from tax liability (for now), and signals policy track correction. However, timing matters, eligibility is plan‑specific, and uncertainty remains about future changes. If you’re in one of the relevant plans, it may be wise to review your status, gather documentation, and consider acting sooner rather than later.
