Student-loan forgiveness delays will soon become a bigger problem for borrowers

The Department of Education is working through a backlog of income-driven repayment applications.

Advocates are urging quick processing before borrowers face new taxes on student-loan forgiveness next year.

Debt relief through income-based repayment plans is also delayed until the winter.

The clock is ticking for President Donald Trump’s administration to work through a student-loan forgiveness backlog.

Since Trump took office, his Department of Education has been processing a slew of income-driven repayment applications and filings for debt forgiveness, known as buybacks, tied to extra payments for the Public Service Loan Forgiveness program, before changes to those plans go into effect next year.

The processing backlog began under former President Joe Biden due to legal challenges against his SAVE income-driven repayment plan. While processing resumed in early January, the Trump administration faced a lawsuit from advocates over accusations of unnecessary delays.

The Department of Education said in an August court filing that 1.3 million income-driven repayment plans are pending as of July 31, along with 72,730 PSLF requests for credit toward forgiveness coming from extra payments. The continued backlogs prompted the American Federation of Teachers to amend a previously filed complaint into a class action on September 17, and it urged the department to cancel the loans of borrowers who have met their payment threshold through 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.

This is especially timely, the filing added, because loan forgiveness through income-driven repayment plans will once again be taxable beginning January 1, 2026. That’s because a 2021 provision in the American Rescue Plan that made forgiveness tax-free is expiring. Borrowers seeking forgiveness under those plans could face thousands of dollars in tax bills, depending on the amount forgiven, if they don’t get approved by the end of the year.

Millions of student-loan borrowers have been in relief limbo not only due to paperwork processing delays but also changes to repayment plans codified in Trump’s “big beautiful” spending law. It means that borrowers could be facing more expensive monthly payments and new taxes on any relief next year while the administration moves forward with its plan to overhaul the student-loan repayment system.

AFT’s complaint said that one plaintiff has paid her loans for over 25 years, and despite reaching the forgiveness threshold, the department has not processed her relief. She has continued to make $700 payments to avoid falling into delinquency, and she’ll face a tax liability if her relief is not processed this year.

Here’s what we know about pending changes for federal student-loan borrowers.

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Trump’s Department of Education has made clear that its priority is ensuring borrowers focus on repayment, not loan forgiveness. In that vein, Trump’s spending law overhauled the repayment system by eliminating existing repayment plans and replacing them with two options: a standard repayment plan and a new Repayment Assistance Plan, which allows for loan forgiveness after 30 years.

The law also axed former President Joe Biden’s SAVE plan, which would have allowed for forgiveness after as few as 10 years of payments. The department restarted interest charges for the 8 million borrowers enrolled in SAVE on August 1, and it recommended that enrolled borrowers switch to a new repayment plan, like the income-based repayment plan.

However, income-based repayment is also facing processing delays. The department posted a notice over the summer stating that ongoing litigation with the SAVE plan was preventing it from processing IBR forgiveness. It said it’s working to ensure IBR payment counts are accurate — a process that it now does not expect to complete until winter 2025.

Sen. Bernie Sanders led some of his colleagues in sending a letter to Linda McMahon, Trump’s education secretary, about the IBR delays. They wrote that if the department does not act quickly to process relief, “borrowers who should receive forgiveness before the tax exemption expires could face significant tax bills on debt relief that should have been granted to them without penalty.”

The uncertainty with relief and repayment has borrowers on edge. Justin Krull, a 42-year-old borrower enrolled in SAVE, previously told Business Insider that he wants to make his payments, but the changing policies are making that difficult.

“We want to take care of our responsibilities,” he said. “We just want a system in place that we can rely on and be able to financially plan for our futures and endeavors that exist out there.”

Read the original article on Business Insider