What’s the New Law for Student Loans? Forgiveness Quietly Resumes for Some Borrowers

Student loan forgiveness has quietly restarted in the United States for a small group of eligible borrowers, marking a major update to repayment policies in 2025. The Department of Education paused forgiveness earlier this year to update its systems, but discharges under Income-Based Repayment (IBR) plans are now resuming in phases.

This development matters because many Americans believed widespread student debt relief was off the table after the Supreme Court struck down a broader plan in 2023. Now, while sweeping forgiveness remains unlikely, targeted relief under existing laws is moving forward again — and some borrowers are already receiving notifications.

Student Loan Forgiveness Returns Under Updated IBR Plan Rules

The Education Department confirmed in July that forgiveness for IBR plans was temporarily suspended while it upgraded its systems to properly count qualifying monthly payments. These plans cancel a borrower’s remaining student debt after 20 or 25 years — the equivalent of 240 or 300 monthly payments — depending on when the loan was issued.

With updates nearly complete, eligible borrowers are once again seeing their debts forgiven. Experts report that some Americans have already received emails from Federal Student Aid notifying them of pending discharges, even though the department hasn’t formally announced the resumption. Unless recipients actively opt out, their remaining balances will be canceled automatically.

For loans issued before July 1, 2014, forgiveness requires 300 payments, while loans taken after that date require 240. Importantly, only those enrolled in IBR qualify — payments under other income-driven repayment plans like Pay As You Earn (PAYE), Income Contingent Repayment (ICR), or the new Savings on a Valuable Education (SAVE) plan do not count toward forgiveness unless the borrower transitions to IBR.

The Education Department plans to forward discharge data to loan servicers after October 21, 2025, who will then process the actual cancellations. Borrowers are encouraged to ensure their contact information is up to date with both Federal Student Aid and their loan servicers to receive notifications promptly.

How the Government Shutdown and Tax Rules Could Affect Borrowers

Although forgiveness is resuming, the ongoing federal government shutdown has slowed progress on related legal cases. The American Federation of Teachers’ lawsuit against the Trump administration, which alleges deliberate delays in processing forgiveness, is currently on hold because Department of Justice lawyers cannot work during the shutdown.

This delay could have tax consequences. Under the American Rescue Plan Act of 2021, forgiven student debt is exempt from federal taxes through the end of 2025. If cancellations are pushed into 2026, borrowers could face thousands of dollars in federal tax liability — plus potential state taxes — on forgiven amounts.

“It’s urgent that those who are already entitled to cancellation get their loans discharged before the end of the year,” said Persis Yu of the Student Borrower Protection Center. “Otherwise, they risk unnecessary tax bills.”

Who Might Opt Out — and Why

While most borrowers welcome forgiveness, some may choose to decline it. One reason is the possibility of state tax liability, as certain states still tax forgiven student debt even if the federal government does not. Anyone who opts out must continue making payments under their existing plan.

Roughly 2 million Americans are currently enrolled in IBR, but only a fraction are eligible for immediate discharge. Even so, the resumption of forgiveness is a significant development for those who have spent decades repaying their loans.

The return of targeted forgiveness under the IBR plan shows that while mass student debt cancellation may be off the table, existing programs still offer real relief for borrowers who meet strict eligibility requirements. Anyone nearing the 20- or 25-year mark should watch their email closely in the weeks ahead.

FYI (keeping you in the loop)-

Q1: What’s the new law for student loans in 2025?

The Education Department has resumed forgiveness under Income-Based Repayment (IBR) plans, canceling debt after 20 or 25 years of payments.

Q2: Who qualifies for student loan forgiveness under the new rules?

Borrowers enrolled in IBR who’ve made 240 or 300 monthly payments, depending on when the loan originated, are eligible for forgiveness.

Q3: How will I know if my loans are being forgiven?

Eligible borrowers will receive an email from Federal Student Aid and can opt out if they choose. Discharges begin processing after October 21, 2025.

Q4: Will a government shutdown delay student loan forgiveness?

It could delay some legal cases and push forgiveness into 2026, which might trigger new federal and state tax liabilities.

Q5: Can I refuse student loan forgiveness?

Yes. Some borrowers opt out to avoid potential state taxes, but they must continue repaying their loans if they decline forgiveness.