White House Reaches Agreement to Forgive Student Loans for Millions, Waive Taxes on Relief
WASHINGTON D.C. – The Biden administration has reached an agreement to restore student loan forgiveness for borrowers enrolled in Income-Contingent Repayment and Pay as You Earn plans, offering debt relief to millions and ensuring that forgiven amounts will not be subject to federal taxes this year. The resolution stems from a lawsuit filed by the American Federation of teachers (AFT) against the U.S. Department of Education.
These income-driven repayment programs base monthly payments on a borrower’s salary and typically cancel any remaining debt after 20 or 25 years. The administration had temporarily paused forgiveness under these plans, citing a court order impacting the Saving on a Valuable Education (SAVE) plan.
The agreement resolves a dispute initiated when the AFT accused Trump officials of blocking access to student loan programs that were available when borrowers initially took out their loans. Trump’s Education Department, led by Linda McMahon, justified the block by referencing the court order pausing the Biden administration’s SAVE plan. This temporary restriction limited borrowers to a single repayment option: the Income-Based Repayment plan.
A key outcome of Friday’s agreement is that borrowers eligible for forgiveness in the current year will not owe federal taxes on the relief received, according to the trump administration.
“This is a tremendous win for borrowers. With today’s filing, borrowers can rest a little easier,” said Winston Berkman-Breen, legal director for Protect Borrowers, which represented the teachers’ union in the case.
However, the long-term future of these programs remains uncertain. President Trump’s “Big, Lovely Bill,” enacted earlier this year, is scheduled to phase out the Income-Contingent Repayment and Pay as You Earn programs by July 1, 2028. This change will impact over 2.5 million borrowers currently enrolled in these plans.
Consumer advocates previously warned that limiting repayment options, including the planned end of SAVE, could significantly increase monthly student loan payments – possibly by hundreds of dollars for typical borrowers – according to analysis from the Student Borrower Protection Center.
