The Department of Education has paused certain student loan forgiveness. Here's what you need to know
The department posted a notice of the pause in an FAQ on its Federal Student Aid website earlier this month, saying that it needs to address a federal court order that affects income-driven repayment plans.
'Currently, IBR forgiveness is paused while our systems are updated to accurately count months not affected by the court's injunction. IBR forgiveness will resume once those updates are completed,' the department wrote.
The department noted that forgiveness in other income-driven repayment plans are paused, but it will continue to 'process loan forgiveness for the IBR Plan, which was separately enacted by Congress' in the future.
The pause comes at a time of major change for the nation's student loan system that has rattled some borrowers. Interest will start accruing on August 1 for millions of borrowers in Saving on a Valuable Education (SAVE) plans, a Biden-era income-driven repayment option that has been blocked by the federal court order, even as payment remain halted. And President Donald Trump's 'big, beautiful bill' contains a major overhaul of student loan repayment plans and borrowing rules.
The roughly 2 million borrowers in IBR plans are eligible to have their loans forgiven after either 20 or 25 years of payments, depending on when the loans were taken out. But calculating whether borrowers have made enough payments to qualify for forgiveness has been an issue for several years.
Also, the Biden administration made several changes to the IBR plan forgiveness program, including counting the months that loan payments were deferred for economic hardship reasons or paused in forbearance toward payment requirement.
The court's order affected certain of the Biden administration's regulatory changes that pertain to the IBR plans, including the expanded set of deferments and forbearances that count toward forgiveness, said Mark Kantrowitz, a longtime student loan expert.
Borrowers, however, are worried that the Trump administration — which has not been supportive of loan forgiveness programs in the past — may 'slow walk' the loan discharges, Kantrowitz said. They must continue repaying their loans until the Department of Education determines they have met the criteria to have their loans discharged.
'Borrowers who qualify for forgiveness want to receive their forgiveness,' he said.
The department says that it needs to temporarily suspend the IBR plan forgiveness program to implement the court ruling.
'Legal IBR discharges will resume as soon as the Department is able to establish the correct payment count,' Ellen Keast, the agency's deputy press secretary, said in a statement to CNN. 'For any borrower that makes a payment after the date of borrower eligibility, the Department will refund overpayments when the discharges resume.'
While the department did not respond to CNN's question about when IBR plan forgiveness will resume, Scott Buchanan, executive director of the Student Loan Servicing Alliance, said he doesn't think the pause will last long.
Still, another reason eligible borrowers are concerned about the pause is that loans canceled after January 1 are set to be counted as income for tax purposes, said Aissa Canchola Banez, policy director at the Student Borrower Protection Center, an advocacy group. That's because the Republican-led Congress did not extend a Biden-era provision that made such cancellations tax exempt and is scheduled to expire at year's end.
'This delay can force folks to ultimately get to that date in which they could potentially see a tax bill,' she said.
The department, which has laid off a sizable number of its staff, is already contending with a large backlog of roughly 1.5 million applications from borrowers seeking to switch into different income-driven repayment plans, Kantrowitz said.
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