The Trump administration just brokered a deal with the American Federation of Teachers that might actually lighten the load for student loan borrowers.
In a surprising turn, the administration announced on Friday a pact to restart student loan forgiveness under various income-driven repayment plans, reversing an earlier block during a heated legal battle.
This saga kicked off earlier this year when the Trump team put a freeze on several forgiveness programs, limiting borrowers to just one option—the Income-Based Repayment plan—while citing a court order against another Biden-era initiative as their justification.
Enter the American Federation of Teachers (AFT), which wasn’t about to let this stand, filing a lawsuit in March claiming the Department of Education was stonewalling borrowers from accessing relief they’d been promised under original loan terms.
After months of courtroom drama, the administration negotiated a deal with the AFT to bring back these income-driven repayment plans, covering options like income-contingent and pay-as-you-earn programs, plus the Public Service Loan Forgiveness initiative.
Under this new agreement, the Department of Education will resume canceling loans for eligible borrowers who’ve made the required minimum payments, putting an end to the bureaucratic limbo that’s plagued them.
Here’s a kicker—the deal also shields borrowers from federal tax hits on forgiven loans if they qualify for relief by the end of next year, a clever dodge around a tax law that could slap them with hefty bills come 2026.
To sweeten the pot, the administration agreed to refund borrowers who overpaid past their eligibility for cancellation, a rare nod to fairness in a system often criticized for its red tape.
Even buyback applications for these programs will be processed, including for those without the previously required partial financial hardship, undoing a restriction from earlier Trump-era legislation.
But don’t pop the champagne just yet—this joint agreement still needs a court’s stamp of approval before any loans are wiped clean, and there’s no clear timeline for when that might happen.
If greenlit, the Trump administration must submit six-monthly updates on how loan cancellations are progressing, a measure likely meant to keep the pressure on for swift action.
Listen to the cheer from Winston Berkman-Breen, legal director for Protect Borrowers, who gushed, “This is a tremendous win for borrowers.” While it’s nice to see optimism, let’s not forget that government promises often come with more strings than a puppet show.
AFT President Randi Weingarten doubled down, declaring, “This year, we took on the Trump administration when it refused to follow the law and denied borrowers the relief they were owed.” Fair point, but one wonders if this is less about principle and more about union clout flexing its muscle.
Still, credit where it’s due—this deal, if it holds, does offer a lifeline to those drowning in debt, even if it’s a Band-Aid on a system that desperately needs deeper reform to avoid burdening future generations with unsustainable loans.
