Thousands of federal student loan borrowers have received some good news: Because they have now been making payments for at least 20 years, their remaining balances will be wiped out.
After a pause this year, the Trump administration has resumed loan forgiveness for borrowers participating in a program called “income-based repayment,” an income-based repayment plan that ties a borrower’s monthly payment amount to their income and household size. After making payments for 20 to 25 years, any remaining balance will be forgiven.
“This is really significant because they haven't canceled loans under an income-driven repayment plan in months,” said Winston Berkman-Breen, legal director at the Student Borrower Protection Center, an advocacy group.
Borrowers who have reached the payment threshold do not need to take any action, but should receive a notification with further information about when the loan waiver will be processed. (You can opt out before October 21, although it's unlikely many will.)
In a recent email notice, the Education Department said it would notify servicers of the status of borrowers after Oct. 21 and that most remaining balances would disappear within two weeks, although others could take longer to process.
Many borrowers were eagerly hoping to hear something before the end of the year. This is because forgiven student debt is typically taxed as income, but a temporary tax break ensured that loan repayments are exempt from federal taxation from 2021 to 2025 (although some states may impose their own taxes).
Still, credit experts believe borrowers who reach the number of qualifying payments in 2025 will be eligible for the tax break, even if the cancellation is processed later.
If a borrower has not yet received a notice, it may still arrive. It is expected that the relief notices will be rolled out in batches. However, it is unclear how many have already been forgiven and how long it will take to notify all eligible borrowers. The Education Ministry did not respond to requests for comment given the government shutdown.
IBR, which was first available in July 2009, has enrolled more than two million borrowers, according to recent data from the Federal Student Aid Office, but not all of them will have exceeded the payment threshold. Enrolled borrowers with loans taken out after July 1, 2014 must make 240 payments, while those with loans taken out before then must make 300 payments.
“If you hit 300 and haven’t heard anything yet, that doesn’t mean you’ve been skipped — just that you’re not in the first wave,” Stanley Tate, a consumer attorney specializing in student loans, said in a newsletter to borrowers.
The Student Loan Servicing Alliance, the trade group for the companies that service the loans and collect payments, confirmed the effort was underway. It was unclear whether the temporary federal government shutdown would cause delays. While loan servicers are still operating, they can only process layoffs after receiving instructions from the Department of Education.
Millions of other borrowers enrolled in other income-driven plans are still ineligible for cancellation, a development that stems from Republican-led legal challenges last year to the Biden-era Saving on a Valuable Education (SAVE) repayment program.
A related court ruling this year temporarily banned forgiveness in the SAVE program, which the Department of Education has interpreted to also block loan relief in other long-standing income-driven plans based on the same legal authority, including Income-Contingent Repayment (ICR) and Pay as You Earn (PAYE). IBR was not subject to the same treatment because it was created by Congress. However, cancellation of IBR loans has been temporarily paused while the Education Ministry updated its systems to accurately count payments not affected by the court order, the ministry said.
Last month, the American Federation for Teachers asked the courts to require the Department of Education to process loan discharges for borrowers who had met sufficient qualification requirements.
People on locked plans – SAVE, PAYE and ICR – who have made the required payments under the IBR rules (240 or 300, depending on which version of IBR they are eligible for) may want to consider switching to this plan soon. That could help them avoid the so-called tax bomb that will come again next year.
But some borrowers may face another obstacle. “While Congress made all borrowers eligible for IBR this summer, the Department of Education has not yet implemented this legislative change, meaning that at least some borrowers who should now be eligible for IBR are being rejected when they attempt to switch,” said Abby Shafroth, director of Student Loan Borrower Assistance at the National Consumer Law Center.
If you're still receiving monthly bills even though you think you've made enough payments to qualify for loan relief, it's probably wise to continue filing them for now – the Department of Education had said it would reimburse those who overpaid.
However, if monthly payments cause financial hardship, borrowers can call their loan servicer and ask for a deferment. This will pause payments but keep your account in good standing while you wait for your discharge notice.