Millions of Borrowers Regain Access to Student Loan Forgiveness After Trump Officials Reverse Course

In a major policy pivot set to benefit millions of US student loan borrowers, the Department of Education has restarted forgiveness processing for income-driven repayment (IDR) plans, including the Income‑Contingent Repayment (ICR) and Pay As You Earn (PAYE) programmes, thanks to a settlement with the American Federation of Teachers (AFT) filed on 17 October 2025.

Borrowers who reached eligibility in 2025 will now have their discharge date back-dated and protected from tax liability under the American Rescue Plan Act tax-free forgiveness window.

What the Agreement Says and Who Qualifies

The settlement mandates that the Department will:

• Resume debt cancellations for borrowers enrolled in ICR, PAYE, and Income‑Based Repayment (IBR) plans, reversing a pause earlier this year.
• Recognise the date a borrower became eligible as the effective discharge date — critical for eligibility before the tax-free forgiveness window closes on 31 December 2025.
• Require monthly reports for six months to a court monitoring the backlog in processing.
• According to the AFT, about 1.2 million borrowers were in ICR and 1.3 million in PAYE as of mid-2025.

Why the Reversal Happened

Earlier in 2025 the Department paused processing for several IDR-based forgiveness tracks, citing system-upgrades and a court challenge to the Saving on a Valuable Education (SAVE) plan.

In March the AFT sued, alleging unlawful delay and blockage of borrowers' rights under federal law. Under the settlement, the Department also agreed to refund borrowers who made payments after they reached forgiveness eligibility.

'Today's filing restores a lawful process that had stalled borrowers for months,' said AFT President Randi Weingarten in a statement. 'This agreement means those stuck in limbo can see a light at the end of the tunnel.'

Tax Implications and Timing Pressure

The timing of this reversal is critical. The American Rescue Plan Act's tax-exclusion for cancelled federal student loans ends 31 December 2025. That means borrowers whose discharge is handled in 2026 could face tax liabilities unless their effective eligibility date is back-dated. This settlement secures that protection.

Still, many borrowers remain in limbo under the SAVE plan, or waiting for their applications to be processed.

Remaining Challenges for Borrowers

Although the relief is significant, there are hurdles:

• Applications for the SAVE plan remain suspended pending legal resolution.
• A backlog of more than 74,000 pending applications for the Public Service Loan Forgiveness (PSLF) 'buy-back' option remains.
• Many borrowers still worry about the stability of future repayment reform under new legislation.

What Borrowers Should Do Now

Borrowers enrolled in ICR, PAYE or IBR who reached 20–25 years of payments should monitor notifications from the Education Department and confirm their discharge date is reflected back-dated. Those in SAVE should review whether switching plans before year-end to protect tax status is advisable.

Financial advisers note that although relief is returning, administrative clarity and faster processing remain priorities.