The U.S. Department of Education has resumed student loan forgiveness for borrowers enrolled in the Income-Contingent Repayment (ICR) and Pay As You Earn (PAYE) plans. This decision follows a legal dispute that temporarily halted debt cancellation under these programs and now extends to the Income-Based Repayment (IBR) plan as well. Higher education expert Mark Kantrowitz noted that about 2.5 million borrowers are part of the ICR or PAYE plans, which forgive remaining balances after 25 and 20 years of payments, respectively.
Legal Agreement and Its Implications
The resumption follows a legal settlement between the Department of Education and the American Federation of Teachers (AFT), which a federal court approved. Representing 1.8 million members, the AFT sued the Trump Administration in March 2025, accusing it of unlawfully blocking loan forgiveness under several IDR plans. Winston Berkman-Breen, legal director of Protect Borrowers, praised the deal as a “tremendous victory for borrowers.”
Tax Implications for Borrowers
The agreement also tackles potential tax issues for borrowers. The federal tax exemption for student loan forgiveness ends in 2025, meaning canceled debt could become taxable starting January 2026. To avoid this, the Department of Education will consider the borrower’s eligibility date as the official cancellation date, even if processing happens in 2026. Borrowers who qualify by December 31, 2025, will not owe federal taxes on their forgiven debt.
| Loan plan | Forgiveness time | Estimated beneficiaries |
|---|---|---|
| ICR | 25 years | 2.5 million (ICR & PAYE combined) |
| PAYE | 20 years | 2.5 million (ICR & PAYE combined) |
| IBR | Variable | Not specified |
Future Legislative Changes
Looking ahead, upcoming legislation will phase out the ICR and PAYE plans. Under the “One Big, Beautiful Bill Act” signed by President Trump, these plans will end on July 1, 2028. They will be replaced by the Repayment Assistance Plan (RAP), which introduces a 30-year repayment term before forgiveness—longer than the current IDR options. Borrowers currently in ICR or PAYE should explore other plans that offer earlier cancellation before the 2028 cutoff.
Impact on Borrowers
These changes will significantly impact millions of Americans. More than 40 million people carry student loan debt totaling over $1.6 trillion, and over 13 million use income-driven repayment plans, according to the National Consumer Law Center. While the policy provides some relief, it also underscores the need for borrowers to stay informed and proactive about how future reforms may affect their financial situations.
Deja un comentario