However, the IRS and the Treasury Department retain the “final say” on whether forgiven balances will count as taxable income.
Political and Legal Context
The Business Insider report noted that AFT initially sued the Education Department in March over delays in processing IDR applications, later expanding the suit into a class action representing millions of borrowers. Both sides now want the court to enter the agreement as an official order.
A Department spokesperson credited Trump’s policies for restarting relief:
“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.”
The deal also comes as Trump’s administration implements broader structural changes to federal student loans — including consolidating existing repayment plans into two simplified options starting in July 2026 and resuming collections on defaulted loans after a five-year pause.
The Broader Impact on Borrowers
For millions of Americans, the new Student Loan Forgiveness processing agreement is a long-awaited victory. It offers clarity for public service workers, teachers, and low-income borrowers navigating years of bureaucratic uncertainty.
