Trump administration pledges to speed some student loan forgiveness after lawsuit

FILE - The U.S. Department of Education building is seen in Washington, on Nov. 18, 2024. Photo by Jose Luis Magana /AP

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NEW YORK (AP) — The Trump administration has agreed to resume student loan forgiveness for an estimated 2.5 million borrowers who are enrolled in certain federal repayment plans following a lawsuit from the American Federation of Teachers.

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Under the agreement reached Friday between the teachers union and the administration, the Education Department will process loan forgiveness for those eligible in certain repayment plans that offer lower monthly payments based on a borrower’s earnings. The government had stopped providing forgiveness under those plans based on its interpretation of a different court decision.

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The agreement will also protect borrowers from being hit with high tax bills on debt due to be forgiven this year.

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“We took on the Trump administration when it refused to follow the law and denied borrowers the relief they were owed,” AFT President Randi Weingarten said in a statement. “Our agreement means that those borrowers stuck in limbo can either get immediate relief or finally see a light at the end of the tunnel.”

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The Education Department said the Trump administration is reviewing forgiveness programs to identify ones that were not affected by court rulings that blocked much of the Biden administration’s efforts to cancel student debt.

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“The Administration looks forward to continuing its work to simplify the student loan repayment process through implementation of the President’s One Big Beautiful Bill Act,” the department said in a statement.

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Several forgiveness programs are included

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According to the deal, the Trump administration must cancel student debt for eligible borrowers enrolled in the following plans: income-driven repayment (IDR) plans, income-contingent repayment plans, Pay As You Earn (PAYE), and Public Service Loan Forgiveness (PSLF) plans.

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If borrowers have made payments beyond what was needed for forgiveness, those payments will be reimbursed. The Education Department must also continue to process IDR and PSLF “buyback” applications. Balances forgiven before Dec. 31 will not be treated as taxable income, as they will in 2026 due to a recent change in tax law.

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The administration must also file progress reports every six months with the court to show the pace of application processing and loan forgiveness, according to the AFT.

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How many borrowers are waiting for forgiveness?

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An estimated 2.5 million borrowers in IDR plans will be affected by the agreement, and another 70,000 are waiting for forgiveness through the PSLF program.

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Even with the agreement in place, mass layoffs at the Education Department could factor into processing times for forgiveness, said Megan Walter, senior policy analyst at the National Association of Student Financial Aid Administrators.

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If borrowers continue to make payments while their application is pending forgiveness, that will be refunded to them if they are successful, Walter said. “But keep really good records,” she said.