Student Loan Forgiveness Resumes for 2 Million Borrowers: What You Need to Know

The U.S. Department of Education has resumed processing student loan forgiveness for borrowers on income-based repayment plans, bringing relief to approximately 2 million Americans. This decision comes after a months-long pause, during which the department worked to ensure payment counts were accurate.

Who is Eligible?

Borrowers enrolled in income-based repayment (IBR) plans are eligible for debt cancellation after making payments for 20 or 25 years. The Department of Education has sent emails to eligible borrowers, notifying them that they qualify for loan forgiveness. These borrowers will have their loans discharged over the next several months.

Key Details

• Opt-out deadline: Borrowers who want to opt out of the relief must do so by October 21 by contacting their loan servicer.
• Tax implications: Borrowers who receive debt relief may face state tax liability. However, those who opt out will be required to continue making payments on their loans.
• Processing time: Most borrowers will have their discharge processed within two weeks, but some may take longer.

What’s Changing?

A 2021 provision in the American Rescue Plan that made student loan forgiveness tax-free is set to expire on December 31, 2025. This means borrowers who receive debt relief in 2026 may face thousands of dollars in tax bills. The Department of Education has urged borrowers to take action before the end of the year to avoid potential tax implications ¹.

Background

The pause on student loan forgiveness was due to a backlog of nearly 2 million pending applications seeking to lower monthly payments. The Department of Education has been working to clear this backlog, with over 79,000 applications processed in April alone. However, many borrowers remain in limbo, and advocates are pushing for faster action ¹.

If you have questions or concerns about your student loan forgiveness, contact your loan servicer or the Department of Education for more information