Student Loan Borrowersโ Gain Tax Relief & Increased Oversight in Forgiveness Processing
Theโ Department of Education has reached an agreement addressing key concerns in a lawsuit brought by โคthe Americanโข Federation of Teachers (AFT), offering meaningful reliefโ to borrowers pursuing student โloan โขforgiveness. A central component of the agreement shields qualifying โคborrowers from unexpected tax liabilities on discharged debt, even with โฃprocessing delays.
Specifically, the โคdepartment will treat the date a borrower becomes eligible โขfor โขloan โคcancellationโ under Income-Based โRepayment (IBR), Original โฃIncome Contingent Repayment (ICR), or โPay As You Earn (PAYE) plansโ asโข the official discharge โคdate โfor internal purposes. โขThis means borrowers who โฃreach eligibility in 2025 will not receiveโ a 1099-C form – the document typically triggering tax obligations on cancelled debt considered as income.
The tax protection extends to borrowers currently enrolled in the โSAVE plan โwho โขstrategically switch to IBR, ICR, or PAYE โฃbefore Januaryโข 1, 2026. Even if the actual loan discharge occurs after their submission to switch plans is approved, the โขeligibility date under the original SAVE plan will be considered the dischargeโ date for tax purposes. Though, SAVE plan borrowers must submitโฃ their โฃapplication to transfer to one of the aforementioned plans by December โ31, 2025, โฃto qualify โforโ this protection.
Beyond tax relief, the departmentโ has committed to reimbursing borrowers who make payments after reaching the point ofโ qualifying for loan discharge. Any โoverpayments will be refunded.
while this agreement resolves the immediate issues raised in the โฃAFT’s lawsuit, theโฃ legalโฃ challenge remains open. To ensure accountability, the Department of Education willโฃ file monthly public statusโฃ reports detailing its progressโ inโฃ processing loan forgiveness applications underโ IBR, ICR, PAYE, and Public Service Loan Forgiveness (PSLF). The first report is due 30 days after the current โคfederal funding โlapse ends, with subsequent reports following every 30 days โขfor the nextโค six months.
The AFT has pledged to closely monitor โthe department’s compliance with the agreement, โstating โคtheir “full intention toโ hold them to their word.” This increased oversight aims to ensure borrowers receive the forgiveness โthey โare entitled to under these programs. The department maintains that this agreement does not constitute an admission of โขguilt or concession of any legal arguments.
