It could be life-changing for people with student loan debt
As Donald Trump’s debt relief plan comes into action, a report has suggested that wiping student loan debt could massively boost the US economy.
Millions of borrowers are due to have their debt forgiven as President Trump’s administration moves to restart loan forgiveness plans that were frozen earlier this year.
The move comes after months of legal battles between the White House and the American Federation of Teachers, who sued when the government stopped processing forgiveness applications.
Eligible borrowers under the Income-Contingent Repayment (ICR) plan or the Pay as You Earn (PAYE) plan could soon see their loans wiped.
More than 2.5 million borrowers are said to be in either ICR or PAYE. Those who work in specific public service roles are eligible, including government employees, teachers, and non-profit organization workers.
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People can check if they qualify for the reinstated loan forgiveness plan via the Federal Student Aid website.
Millions of graduates could have their student loans forgiven (Mark Draisey Photography/Getty Images)
It comes as US household debt reached a staggering high of $18.20 trillion in 2025, as per Debt.org.
Student loans were the third-highest debt, coming in at $1.63 trillion. Auto loans came in second place at $1.64 million, while mortgages topped the list at $12.8 trillion.
A 2021 report by the Roosevelt Institute found that, on average, student loan borrowers aged between 18 and 39 spent more than 20 percent of their monthly income on repayments. Some 65 percent said they had less than $1,000 in their bank accounts and struggled to afford long-term expenses, while being unable to save long-term.
The impact of student loan debt relief on the economy
The report said that freeing up funds through student debt cancellation ‘would allow millions of borrowers to spend into the broader economy’.
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Short-term spending could be boosted by as much as four percent, amplifying GDP by up to $108 billion over a ten-year period.
This new economic activity could then lower the unemployment rate by up to 0.36 percentage points.
The move could also see a boom in start-up businesses, with previous data discovering debt burdens resulted in an estimated two million fewer businesses being formed between 2006 and 2015.
A 2021 report found student debt cancelation could boost the economy (Grace Cary/Getty Images)
While this analysis predates the current plan, the same dynamic – freeing up money for spending and investment – would still apply.
This might all sound positive, but the reality in 2025 could be quite different – especially as Americans continue to struggle with the cost of living. And under the president’s ‘big, beautiful bill’, major student loan repayment programs are being overhauled.
Both ICR and PAYE will be phased out by July 2028, leaving Income-Based Repayment (IBR) as the main forgiveness option, now with expanded access for borrowers.
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So while relief is still possible for millions of current borrowers, others face an uncertain future, with the possibility of even longer waits until they become eligible for forgiveness.Featured Image Credit: Kevin Dietsch/Getty Images
Topics: Donald Trump, Education, Money, US News, Politics
Ellie Kemp
Published 15:45 26 Oct 2025 GMT
Warning to student loan borrowers as Trump announces plans to cancel debt for millions
The Trump administration has announced a plan to scrap student loan debt
Millions of people are now eligible for student loan forgiveness in America, but there’s a catch.
After the American Federation of Teachers (AFT) sued the White House because the Department of Education had ceased processing applications for affordable repayment programs for student loans, things took a turn.
The AFT has been in talks with the Department of Education, and on October 17, reached an agreement that student loan forgiveness will be issued to selected applicants.
The Trump administration said that, as part of the Income-Contingent Repayment (ICR) and Pay as You Earn (PAYE) plans, student loan forgiveness will benefit more than 2.5 million, according to CNBC.
Those who think they might be eligible can check the Federal Student Aid website, but if they don’t want to receive a tax bill for their discharged loans, they’ll need to act fast.
Millions of students could see their student debt disappear (MementoJpeg/ Getty Stock)
The website explains: “In certain situations, you can have your federal student loans forgiven, canceled, or discharged. That means you won’t have to pay back some or all of your loan(s).”
The Department of Education shared that borrowers who become eligible for loan forgiveness in 2025 will not owe federal taxes on the amounts, provided they are not on a Saving on a Valuable Education repayment plan.
The SAVE plan is currently blocked by federal courts and will be eradicated by Trump’s ‘big beautiful bill.’
So, to make sure you’re able to have your forgiven funds remain tax-free, switch to an ICR, PAYE or IBC program before the end of the year to be eligible.
If you find that you’ve been rejected for the IBR plan because you lack evidence to show you are suffering financial hardship, the Department of Education advises you to reapply.
The administration shared people may not pay federal tax on their forgiven loans (Westend61/ Getty Stock)
At this time, the department is still working through a backlog of over 1 million IDR applications, according to CNBC News. However, with the recent government shutdown, it is unknown whether it will affect application processes.
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“The date a borrower becomes eligible to have their loans cancelled under the IBR, Original ICR, or PAYE plans constitutes the effective date of their loan discharge,” the agreement states.
While they won’t be charged federal income taxes, borrowers could be liable to pay state income taxes on forgiven loans, depending on the state they live in.
So, checking your individual circumstances against the Federal Student Aid website is key to making sure you understand what you may or may not be liable to pay to the government.Featured Image Credit: Christopher Furlong/Getty
Topics: Donald Trump, US News, Education, Money
Britt Jones
Published 11:32 21 Oct 2025 GMT+1
How to check if you’re eligible as Trump announces plans to cancel student debt for millions of borrowers
The White House had paused some student loan plans earlier this year
Millions of people are once again eligible for student loan forgiveness in America.
Earlier this year, the American Federation of Teachers (AFT) sued the White House after the Department of Education stopped processing applications for affordable repayment programs for student loans. Some of these programs included student loan forgiveness.
The AFT, which represents almost two million union members, argued at the time that the White House had violated federal law. The blocks by the White House left people with just one plan to choose, known as the Income-Based Repayment plan, or IBR.
