Delays and hefty tax bills threatens millions of student loan borrowers as changes to repayment and forgiveness under the Trump administration face delays.
As Investopedia reports, the Department of Education temporarily paused loan forgiveness under all income-driven repayment (IDR) plans to comply with a court ruling from earlier this year. Borrowers who qualify for forgiveness under IDR plans are now waiting for the Education Department to approve the forgiveness before sweeping changes begin on January 1, 2026.
The temporary tax rule approved by President Joe Biden ends at the end of 2025. According to CNBC, IDR plans will once again be taxable because the 2021 provision in the American Rescue Plan that made forgiveness tax-free is set to expire. This means borrowers seeking forgiveness under those plans could face thousands in tax bills, depending on the amount forgiven, if they’re not approved by the end of the year.
The current tax rule is written in a way that borrowers will have to pay taxes on the amount forgiven, even if they reach the required payments in 2025.
Millions of Student Loan Borrowers Waiting For Forgiveness
There is currently a backlog for processing income-driven repayment applications and filings for debt forgiveness. According to the Department of Education, in an August court filing, more than 1 million IDR plans are pending as of July 31. There are also over 72,000 Public Student Loan Forgiveness (PSLF) requests for credit toward forgiveness coming from extra payments.
The backlogs prompted the American Federation of Teachers to amend a previously filed complaint into a class action on Sept. 17. According to Business Insider, the federation is urging the Education Department to cancel loans for borrowers who met their payment threshold for their repayment plans or PSLF.
“At this rate, borrowers may have to wait years to receive the benefits that Congress directed should be provided to them,” the filing said.
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