The US Department of Education last week notified several student loan servicers that they are set to restart processing applications for the Income-Based Repayment (IBR) plan, which will result in the forgiveness of student loans for eligible borrowers.
The IBR plan, introduced in 2007, is one of the four federal repayment programs that link monthly repayments to income and family size, promising forgiveness of the remaining balance after 20 or 25 years (equivalent to 240 or 300 monthly payments).
Before the temporary halt in July, IBR was the only plan still processing debt forgiveness. In July, the Department of Education temporarily suspended IBR student loan forgiveness applications, citing the need to address court rulings regarding the Biden administration’s SAVE plan.
According to an email sent by the Education Department to the media on October 4th, borrowers have until October 21 to submit their applications. After this deadline, most eligible borrowers are expected to complete the forgiveness process within two weeks, although some borrowers may require more time.
Currently, around 2 million people are enrolled in the IBR program, but not all participants have accumulated sufficient repayment amounts to qualify for forgiveness. The Education Department also stated that it will recalculate borrowers’ correct repayment hours and those who continue to make repayments after qualifying for forgiveness will receive refunds once the forgiveness program is reinstated.
This notification comes at a critical time for borrowers. A provision in the 2021 American Rescue Plan that exempts student loan forgiveness from taxes will expire on December 31. This means that borrowers who receive loan forgiveness after this date may face substantial tax bills. However, this tax change does not apply to individuals enrolled in the Public Service Loan Forgiveness (PSLF) program, which allows government and nonprofit employees to qualify for loan forgiveness after completing 10 years of service and 120 monthly repayments.
Even with the Education Department restarting the loan forgiveness program, a government shutdown could potentially slow down the processing of forgiveness applications. Almost ninety percent of the department’s employees have been placed on mandatory leave, and it remains unclear whether remaining staff are currently submitting borrowers’ files to service providers for the forgiveness process.