2.5 million borrowers to get student loans forgiven under new US deal

Student loans forgivness under Trump: The US Department of Education, led by President Donald Trump, has reached an important agreement with the American Federation of Teachers (AFT) to speed up the approval of student-loan forgiveness applications. This  comes after many months of delays and legal issues that left thousands of borrowers waiting for relief.

The agreement which was signed on October 17, ensures that borrowers who already completed the required payments under programs like Income-Based Repayment (IBR), Income-Contingent Repayment (ICR), and Pay As You Earn (PAYE) will continue to have their loans forgiven while these plans remain active. It also protects the Public Service Loan Forgiveness (PSLF) program, which allows teachers, nurses and other public servants to cancel their loans after making 120 qualifying payments.

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Borrowers using PSLF can still request buybacks. This process lets them include months spent in deferment or forbearance if counting those months brings them closer to the 120-payment mark. In addition to that the the Department of Education agreed to refund borrowers who paid more than needed once their loans became eligible for discharge.

Tax Benefits and Timing

The American Rescue Plan of 2021 made all student-loan forgiveness tax-free until the end of 2025. So starting January 2026 the forgiven loans could be taxed as income which might create problems for borrowers who get relief after that certain date.

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To help borrowers the agreement allows the official forgiveness date to be the date they became eligible rather than the date the department completes paperwork. This ensures that people who reach eligibility in late 2025 will still get the tax exemption, even if their loans are formally canceled in early 2026. the Internal Revenue Service (IRS) and Department of the Treasury will make the final decision on whether forgiven loans are taxable.

A spokesperson for the Department of Education said delays under the previous administration had slowed the process. “Thanks to the Trump Administration’s efforts to separate out the illegal loan cancellation schemes, we are able to process legitimate loan cancellations once again for borrowers who have been making payments for the requisite number of years,” the spokesperson said.