WASHINGTON— The Trump administration has reached a legal agreement with the American Federation of Teachers that will restart and expand federal student loan relief for millions of borrowers stalled by bureaucratic delays, according to union and court filings.
Under the deal, reached in the lawsuit AFT v. U.S. Department of Education, the Education Department agreed to resume processing and cancel student loan debt for borrowers enrolled in long-standing income-driven repayment plans, including Income-Based Repayment, Income-Contingent Repayment, Pay As You Earn and the Public Service Loan Forgiveness program, according to reporting by MSN.
A central feature of the agreement — which the parties have asked a federal judge to enter as a court order — ensures that borrowers eligible for cancellation this year will not face unexpected tax bills on their forgiven debt even if processing runs into 2026, as had been feared because of a pending tax change, the report stated.
Agreement Follows Lawsuit
The settlement comes after the AFT sued the department earlier in 2025, alleging the administration had unlawfully paused enrollment and processing of income-driven plans and blocked borrowers from relief guaranteed under federal law. Following the lawsuit and months of negotiations, the agreement commits the government to: cancel qualifying loans, issue refunds for payments made past the eligibility date for cancellation, process “buyback” applications and file regular status reports with the court on progress, MSN reported.
AFT President Randi Weingarten hailed the development as a vindication for borrowers.
“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,” she said in a statement.
The union also emphasized that the pact will protect borrowers from tax liability on relief granted through Dec. 31, 2025, MSN said.
More Than Two Million Borrowers Affected
The deal could affect roughly 2.5 million borrowers enrolled in eligible repayment plans who had been awaiting forgiveness after making decades of payments, with federal officials signaling that processing of cancellations and related refunds will begin in the coming months.
The Education Department did not immediately respond to a request for comment, and the agreement remains subject to court approval.
