Despite the ongoing government shutdown, the U.S. Department of Education has begun sending out notices to student loan borrowers informing them that their debt will soon be canceled. Multiple notices reviewed by CNBC confirmed that recipients are now eligible to have “some or all of your federal student loan(s) discharged because you have reached the necessary number of payments under your Income-Based Repayment (IBR) Plan.”
Resumption of Debt Relief
According to the department’s email, the recipient’s loan discharge will be processed “over the next several months,” and borrowers must decide by October 21 whether to opt out of the relief. Under the terms of the IBR plan, loan erasure occurs after 20 years or 25 years of qualifying payments, depending on when the loan was initially issued.
The resumption of this relief follows a temporary pause in July, during which the Education Department stated it needed to respond to court orders that changed which periods counted toward loan forgiveness. The pause had sparked panic among borrowers, as IBR is currently the only plan available that offers debt forgiveness, following recent court actions and Congress’ passage of President Donald Trump’s “big beautiful bill,” which is phasing out several other existing student loan repayment plans. With the pause in effect, many borrowers who had been in repayment for decades were left carrying debt that they believed should have already been erased under their loan terms.
Looming Tax Deadline and Legal Battle
The delayed IBR loan forgiveness became a central point of contention in a legal battle between the American Federation of Teachers (AFT) and the Education Department. The teachers’ union, which represents nearly 2 million members, filed a lawsuit against the Trump administration in March, accusing it of depriving student loan borrowers of their rights. The union specifically warned that if the IBR loan discharges were to occur after December, affected borrowers could be saddled with a massive tax bill. The American Rescue Plan Act of 2021 had made student loan forgiveness tax-free at the federal level, but that provision is set to expire at the end of 2025. President Trump’s recent legislation did not extend or make permanent this broader tax exemption.
Author’s Opinion
The timing of the Education Department rushing to discharge IBR loans just before the end-of-year tax deadline is a clear, reactive attempt to mitigate the massive, foreseeable public relations fallout that would occur if thousands of middle-class borrowers were suddenly hit with a crushing, six-figure tax bill. While the relief is welcome, the process has been politically tainted and chaotic. The administration is essentially being forced by legal and public pressure to execute a debt cancellation that contradicts its general policy stance, highlighting how the expiration of the American Rescue Plan’s tax exemption is now the single biggest threat to student loan borrowers’ financial stability.
Featured image credit: Wikimedia Commons
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