US Government restores loan forgiveness, debt relief for millions of student borrowers

*United States President Donald Trump administration’s new agreement restores income-driven repayment cancellations, offering both debt and tax relief to millions of Federal student loan borrowers in the American country 2025

Isola Moses | ConsumerConnect

The United States (US) Government, in a fresh agreement, has restored income-driven repayment cancellations, offering debt relief to millions of Federal student loan borrowers 2025.

ConsumerConnect gathered millions of Americans with Federal student loans could soon see long-awaited relief after the Trump administration agreed to reinstate forgiveness programmes it had previously stalled this year.

The deal, reached with the American Federation of Teachers (AFT), now allows the Department of Education to resume cancelling student debt for borrowers enrolled in income-driven repayment (IDR) plans, agency report said.

The agreement is sequel to a lawsuit filed by the AFT accusing administration officials of illegally blocking access to repayment and forgiveness programmes that had been in place for years before the current administration.

Agreement a tremendous win for student borrowers –Legal Director

Speaking on the development, The New York Post report quoted Winston Berkman-Breen, Legal Director for Protect Borrowers, representing the teachers’ union, to have said: “This is a tremendous win for borrowers.

“With today’s filing, borrowers can rest a little easier.”

As regards what the agreement means for borrowers, any borrowers participating in income-based, income-contingent, pay-as-you-earn, and Public Service Loan Forgiveness programmes, once again, will qualify for cancellation after making the required number of payments.

The administration also agreed to refund borrowers who made additional payments after they had already qualified for forgiveness and to process pending “buyback” applications for both IDR and PSLF participants.

AFT President Randi Weingarten also stated: “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.”

Tax relief also built into the plan

According to the US Government, borrowers whose loans are forgiven in 2025 will not face Federal taxes on the cancelled amount.

Normally, debt discharged after this year would be treated as “taxable income” under current law—a change the AFT has described as a looming “tax bomb.”

However, in order to avoid that penalty, the US Department of Education will treat the date borrowers become eligible for cancellation as the official date of discharge, even if paperwork delays push processing into 2026, report noted.

Insight into pending court approval

It should be noted that the new joint agreement still requires court approval to take legal effect in the country.

If approved, the President Trump’s administration will be required to file six monthly reports, detailing its progress on processing applications and cancellations.

But the timeline for the needed approval remains unclear according to report.

If finalised, however, the deal could provide long-overdue relief for student borrowers, who have spent decades trapped in repayment plans in the United States.