EXPERTS have warned student loan borrowers that poor government foresight could spell trouble for millions.
Despite the Department of Education’s move to suspend student loan forgiveness amid legal challenges, Americans are still being forced to pay back their debt, at risk of having their paychecks slashed.
The student loan system is undergoing changes that could have major implications of millions of borrowers[/caption]
The Department of Education, which directly manages the federal student loan portfolio, has continued to pause student loan forgiveness under Income-Based Repayment, or IBR, prompting concern among lawmakers and Americans alike.
IBR is a popular repayment plan under which debtors’ federal student loans are forgiven after 20 or 25 years in repayment, depending on their loan type and when they were first taken out.
Several other income-driven plans, such as SAVE, ICR, and PAYE, have all been blocked fully or in part due to heightened legal challenges.
The SAVE plan, introduced by the Biden administration, has faced extensive litigation and opposition from Republican lawmakers, ultimately hit with a court injunction that has had a ripple effect across the entire student loan system.
As a result of the legal turmoil, IBR is currently the only repayment plan offering loanees a path to forgiveness.
The Education Department has acknowledged several times that it can legally process student loan forgiveness for student debtors who reach their eligibility threshold under IBR plans.
“Forgiveness as a feature of the SAVE, PAYE, and ICR Plans is currently paused, because those plans were not created by Congress,” the department wrote on its website.
“ED can and will still process loan forgiveness for the IBR Plan, which was separately enacted by Congress.”
However, the federal agency, under directives from the Trump administration, quietly announced on its site that it had paused student loan forgiveness under IBR while it updated its systems to comply with court rulings related to other IDR plans.
SPEAKING OUT
The ongoing halt on IBR student loan forgiveness has sparked much backlash, with a group of Democratic lawmakers writing their concerns to Secretary of Education Linda McMahon in a letter last week.
“At a time when Americans across the country are struggling to meet the costs of health care, food, housing, child care and other basic needs, it is unacceptable for the Trump administration to take any action that delays or denies legally mandated debt relief to borrowers that have been in repayment for over two decades or more,” wrote the senators.
“The department has also provided no timeline for when it will resume forgiveness under IBR, which is alarming considering many borrowers have already been waiting months for relief.”
The Democratic lawmakers also noted that there was no notice to Congress regarding the pause of student loan discharges under IBR, which also came in the wake of testimony by Education Department officials confirming that the agency was processing IBR forgiveness.
Additionally, the senators raised concerns regarding the fact that student loan forgiveness under IBR will once again be taxable starting next year, which may impose a significant financial burden on debtors whose debt forgiveness is delayed due to the department’s actions.
Student Loan Statistics
- Student loan debt in the US is over $1.777 trillion
- Federal student loan debt accounts for 92.2%
- Average federal student loan debt amount per person is $38,375
- Students at a public university borrow $31,960 on average to attain a bachelor’s degree
Credit: Education Data Initiative
“Borrowers are currently allowed to exempt any forgiven student loan amounts from their federal taxes. However, that tax exemption expires at the end of this calendar year. The department already has a significant processing backlog for income-driven repayment plans and forgiveness programs, and that backlog will continue to grow as long as the department has this pause in place,” read the senators’ letter.
“Unless the department acts quickly to ensure that all borrowers entitled to forgiveness under IBR receive that forgiveness as soon as possible, 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.”
PAYMENT PROTEST
For the time being, the Education Department has shared minimal information regarding the IBR student loan forgiveness suspension or when forgiveness processing will restart.
The federal agency has only said that “IBR forgiveness will resume once those updates are completed” to its systems.
As student loan borrowers await resumed forgiveness processing, the Education Department has suggested that they continue to make payments.
New legislation’s impact on student loans
When Donald Trump signed the One Big Beautiful Bill Act into law on July 4, one of the key provisions was that Americans with outstanding federal student loans now have just two repayment options.
Popular income-driven repayment plans like the SAVE plan established under the Biden administration, Pay As You Earn, and Income-Contingent Repayment are being axed.
New student borrowers are being forced to choose between the new standard repayment plan or Repayment Assistance Plan by July 1, 2026.
In addition to reducing the types of repayment plans, Trump’s One Big Beautiful Bill will impact the amount of money that students can borrow from the federal government.
It will get rid of the Graduate PLUS Program, a repayment option that allows graduate or professional students to borrow up to the full cost of attendance.
Under the new legislation, graduate students will face a cutoff of $100,000 for lifetime loans, while medical and law students will be capped at $200,000.
The cap for Parent PLUS loans will also be set at $65,000 per dependent student and will not be eligible for repayment programs.
The new legislation will also affect how student loan deferment works, eliminating deferment options for those struggling due to unemployment or economic hardship.
Borrowers will, however, be permitted to rehabilitate defaulted loans twice instead of just once.
Other changes under the bill include Pell Grant eligibility, including the establishment of Workforce Pell Grants for individuals in career or technical-based education programs.
Debtors who fail to make timely student loan payments are at risk of consequences, including having their credit score reduced as well as potential wage garnishment, during which up to 15% of a worker’s disposable income can be withheld from their paycheck without a court order.
The Education Department has encouraged students to continue with their payments, even if they have reached the threshold for forgiveness, sharing that borrowers should be refunded for any excess payments made.
The Democratic lawmakers, however, were critical of the agency’s advice.
“Borrowers who have been repaying for decades should not be expected to continue paying beyond the 20- or 25-year timeframe required in law, and the department has provided no assurance that refund payments will be made quickly or in a timely manner,” they wrote in the letter.
Millions of borrowers are currently skipping their student loan payments in a costly protest, including one debtor who is neglecting his thousands of dollars in federal student loans.
Americans with student loans are also now scrambling to keep up as interest has resumed, hiking monthly payments by as much as $300.
Borrowers are being encouraged to continue making payments on their student loans despite the forgiveness pause[/caption]
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