AFT secures agreement with Trump administration on student debt relief protections

The American Federation of Teachers (AFT) and the Trump administration have reached an agreement in a federal lawsuit regarding student debt relief for borrowers enrolled in income-driven repayment (IDR) plans. According to a joint status report filed in court, the administration has committed to delivering debt cancellation as required by law and to protecting borrowers from tax liabilities caused by delays in processing.

“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,” said AFT President Randi Weingarten. “This year, we took on the Trump administration when it refused to follow the law and denied borrowers the relief they were owed. 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. And, crucially, they won’t ever get taxed on that relief. The AFT will hold the federal government to its word, and we won’t stop fighting until college is affordable and taking out a student loan doesn’t trap millions of Americans in a ruinous and exploitative debt cycle.”

Winston Berkman-Breen, legal director at Protect Borrowers, added: “This is a tremendous win for borrowers. 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. The U.S. Department of Education has agreed to follow the law and deliver congressionally mandated affordable payments and debt relief to hard-working public service workers across the country, and will do so under court supervision. We fully intend to hold them to their word.”

The lawsuit was initiated earlier this year after the Trump administration removed IDR enrollment applications from government websites and instructed contractors to halt processing these applications. Following legal action from the AFT and individual borrowers, applications resumed and processing restarted after several months.

Previously, the government indicated it would not cancel student loan debt under certain IDR plans despite being legally required to do so. With this new agreement, the administration has publicly committed for the first time to following through with debt cancellation.

A significant concern addressed by this filing involves changes in tax law set to take effect in 2026. Under these changes, canceled student debt could be treated as taxable income for borrowers whose loans are discharged after 2025. The agreement ensures that borrowers eligible for cancellation in 2025 will not face unexpected tax bills due to government processing delays.

Key points from the joint status report include commitments to:

- Cancel student debt for all eligible borrowers under various repayment plans including income-based repayment and Public Service Loan Forgiveness.

- Provide refunds to borrowers who make payments beyond their eligibility date for cancellation.

- Process buyback applications for IDR and PSLF programs.

- Recognize the eligibility date for discharge as the effective date for cancellation and avoid issuing IRS forms indicating taxable income for cancellations effective on or before December 31, 2025.

- Submit six monthly reports to the court on progress.

These measures are intended to extend relief to all qualifying borrowers.

For further information about the lawsuit and related actions taken by AFT regarding IDR application restoration and class action complaints, readers can refer to previous press releases and updates from both organizations.