FROM FOX BUSINESS: In a significant win for student loan borrowers, the Trump administration has agreed to a court-supervised plan that will speed up debt cancellation under income-driven repayment programs and protect borrowers from unexpected tax bills next year.
The administration and the American Federation of Teachers (AFT) reached the agreement Friday in the AFT v. U.S. Department of Education case, resolving months of legal tension over the government’s obligation to cancel student debt for borrowers who have made decades of payments under federal law.
The AFT said in a statement that the deal — now awaiting court approval — requires the Education Department to follow through on debt forgiveness for eligible borrowers in 2025 and ensures they won’t face a surprise tax hit because of bureaucratic delays.
Under the agreement, the administration must cancel student debt for all eligible borrowers enrolled in income-driven repayment, income-contingent repayment, Pay As You Earn, and Public Service Loan Forgiveness (PSLF) programs.
Borrowers who make payments after becoming eligible for cancellation will be reimbursed.
The Education Department must process IDR and PSLF “buyback” applications, including those from borrowers who are no longer required to prove financial hardship.
The deal also addresses a looming “tax bomb” stemming from a 2026 change in federal tax law that will treat canceled debt as income. Borrowers whose loans are canceled on or before December 31, 2025, will no longer receive IRS forms that treat the forgiven balances as taxable income.
The administration must submit six monthly progress reports to the court to demonstrate the pace of application processing and loan discharges.
“For nearly a decade, the AFT has fought for the rights of student loan borrowers to be freed from the shackles of unjust debt—and today, a huge part of that affordability fight was vindicated,” AFT President Randi Weingarten said. “This year, we took on the Trump administration when it refused to follow the law and denied borrowers the relief they were owed.
“This is a tremendous win for borrowers,” Winston Berkman-Breen, the legal director for Protect Borrowers, said. “With today’s filing, borrowers can rest a little easier knowing that they won’t be unjustly hit with a tax bill once their student loans are finally canceled, pursuant to federal law.”
It shouldn’t take us suing Trump’s Education Department to get them to follow the law. But when they break the law, we will fight back. We will keep pushing to protect borrowers. https://t.co/Tk3g3PN3cn
— Randi Weingarten 🇺🇸 🖇️👩🎓📚 (@rweingarten) October 18, 2025
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