In October, the Trump administration and American Federation of Teachers (AFT) filed a joint status report in federal court agreeing to a series of actions affecting millions of Americans holding student loan debt. The agreement, the result of a lawsuit filed by AFT against the U.S. Department of Education (DOE), will protect borrowers enrolled in income-driven repayment (IDR) plans and deliver student debt relief to borrowers making payments under those plans for decades, as required by federal law. The administration also agreed to ensure that borrowers who are eligible to have their loans canceled in 2025 don’t get stuck with a large tax bill as a result of loan forgiveness.

This agreement represents a major policy shift for the Trump administration, which had earlier this year paused student debt relief through federal income-driven repayment programs.

Forgiveness Resumes for Many Borrowers
Some borrowers who reached the payment threshold on income-driven repayment plans have already received emails from their loan servicer confirming that their balances have been zeroed out and their loans have been forgiven. Further, servicers added that national credit bureaus will be (or in some cases already have been) notified of the forgiveness, and that any payments made after the forgiveness effective date will be returned. The email also outlines steps borrowers need to take in order to accept forgiveness or opt out.

It could take a few weeks for all borrowers to receive notice of their loans being discharged, due to the ongoing federal shutdown, as approximately 95 percent of DOE employees are currently furloughed.

 Income-Based Repayment Plan: Under the agreement, approved by the federal court on October 23, 2025, the Department of Education will continue processing loan cancellations for borrowers who are eligible for cancellations under the Income-Based Repayment (“IBR”) plan. This summer, DOE had paused IBR loan forgiveness for these borrowers. AFT argued in their lawsuit that the pause was in violation of federal law.

IBR plans are income-driven repayment plans with monthly payments that are generally equal to 15% of the borrower’s discretionary income, divided by 12 (10% if the loan originated after July 1, 2014). Under an IBR plan, any remaining loan balance may be forgiven if the loan is not fully repaid at the end of the repayment period (20 years for loans first borrowed after July 1, 2014, and 25 years for loans originating prior to July 1, 2014).

ICR and PAYE Repayment Plans: Under the agreement, DOE agrees to continue processing loan cancellations for borrowers who are eligible for cancellation under the Original Income-Contingent Repayment (“ICR”) and Pay As You Earn (“PAYE”) plans, “as long as these plans remain in effect.” Under the “One Big Beautiful Bill,” these plans are scheduled to be phased out by July 1, 2028. DOE had previously halted loan forgiveness under these plans.

Original Income-Contingent Repayment Plans are income-driven repayment plans with monthly payments that are generally equal to 20% of the borrower’s discretionary income, divided by 12, with a repayment period of 25 years. Pay As You Earn Plans are income-driven repayment plans with monthly payments that are generally equal to 10% of the borrower’s discretionary income, divided by 12, with a repayment period of 20 years.

For more information on these plans, including eligibility , see the Federal Student Aid Income-Driven Repayment Plans webpage and Loan Simulator.

SAVE Plan Forgiveness Still Blocked
Under the deal, student loan forgiveness under the Saving on a Valuable Education (SAVE) Plan remains blocked, due to a federal court injunction preventing DOE from implementing the program. That injunction remains in place, despite the current agreement. The agreement also does nothing to stop or reverse the interest accruing for SAVE borrowers, which began August 1^st.

Borrowers currently on the SAVE plan who want to pursue loan forgiveness should switch to IBR, ICR, or PAYE.

Tax Ramifications of Loan Forgiveness
For tax purposes, under the agreement, DOE will use the date a borrower becomes eligible to have their loans cancelled under the IBR, Original ICR, or PAYE plans as the effective date of discharge of their loans, even if the actual discharge of the loan does not occur until 2026. If not for this provision of the agreement, DOE would have been required to file an IRS Form 1099-C for borrowers, which would require them to report the amount of cancelled debt as income on their federal tax return.

Federal tax relief for cancelled debt officially expires at the end of 2025. Beginning in 2026, loan forgiveness under Income-Driven Repayment plans returns to being taxable.

Moving Forward: RAP and Modified IBR Plan
The “One Big Beautiful Bill,” signed into law on July 4, 2025, makes huge changes to federal student loan repayment, and DOE is currently developing new regulations to implement the student loan repayment provisions of the law.

As mentioned above, the ICR and PAYE plans will be phased out by July 1, 2028. SAVE plans will also be phased out by that date. A modified Income-Based Reimbursement plan, with repayments capped at an amount equivalent to the Standard Repayment Plan with a 10-year repayment period, will be rolled out.

RAP: DOE will also be introducing the Repayment Assistance Plan (RAP), a new plan that will have an interest and principal subsidy that prevents the loan balance from growing if all interest is not covered, with a 30-year repayment term before the borrower can qualify for forgiveness.

Sources
Federal Student Aid, Income-Driven Repayment Plans
Federal Student Aid, One Big Beautiful Bill Act Updates
American Federation of Teachers Press Release, “Following Lawsuit by the AFT, Trump Administration Agrees to Deliver Student Debt Relief and Protect Borrowers from Tax Liability Due to Red Tape and Delays,” October 17, 2025
Joint Status Report, American Federation of Teachers, et al., v U.S. Department of Education, et al., Case No. 1:25-cv-802-RBW, Filed October 17, 2025
United States District Court for the District of Columbia, Order in American Federation of Teachers, et al., v U.S. Department of Education, et al., Case No. 1:25-cv-802-RBW, Filed October 23, 2025