Overview
- Education Department and loan servicers have started notifying eligible borrowers and zeroing balances under income-driven plans even during the shutdown.
- The resumption stems from the American Federation of Teachers’ lawsuit that prompted the government to restart cancellations under ICR and PAYE.
- Federal taxes will not apply to borrowers whose eligibility occurs in 2025, even if discharge posts early next year, while 2026 eligibility is expected to generate IRS Form 1099-C income and some states may also tax the relief.
- Borrowers are urged to save dated eligibility and forgiveness notices, confirm account status on StudentAid.gov and with servicers, and monitor credit reports for accuracy.
- Those who paid after meeting forgiveness thresholds can request refunds, and advisors recommend using the freed cash flow to build an emergency fund and reassess financial goals.