Trump's Education Department Resumes Student Loan Forgiveness for 2 Million IBR Borrowers

Got an email saying your student loans are getting canceled? You're not alone.

The Department of Education just started sending these emails to people on Income-Based Repayment plans. If you've been making payments for 20 or 25 years, this is the moment you've been waiting for.

About 2 million people are in IBR plans right now. Many of them are finally getting the loan forgiveness they were promised when they started.

But here's the thing: you need to act fast if you want to make any changes. And the timing could save you thousands in taxes.

Key takeaways

• IBR forgiveness is processing again after being paused since July 2025
• You have until October 21, 2025 to opt out if you don't want the discharge
• Forgiveness becomes taxable on January 1, 2026 when a pandemic-era tax break ends

What is income-based repayment?

Income-Based Repayment is a federal program that bases your monthly payment on what you actually earn. Here's how it works:

Your monthly payment:

• Based on your income (not your loan balance)
• Capped at a percentage of your "discretionary income"
• Could be as low as $0 if you don't earn much
• Stays affordable even if your balance grows

The payoff:

• Make payments for 20 years (if you borrowed after July 1, 2014)
• Or 25 years (if you borrowed before that date)
• Whatever's left gets forgiven
• You stop owing money

TuitionHero Tip

IBR is just one type of income-driven repayment plan. Others include PAYE, REPAYE, and the newer SAVE plan. Each has different rules.

Why did forgiveness get paused?

In July 2025, the Department of Education paused IBR forgiveness. The reason? They needed to check everyone's payment counts.

Payment counts are how the government tracks whether you've made enough payments to qualify for forgiveness. If those numbers are wrong, some people might get forgiveness too early. Others might wait longer than they should.

And payment counts have been a mess. Loan servicers changed over the years. Some payments didn't get recorded. People lost years of credit.

So the department paused everything to fix the numbers. Now they're moving forward again.

What happens next

Here's what you can expect if you got a discharge email:

The tax situation you need to understand

This is the most confusing part, so let's break it down.

Right now (through December 31, 2025):

• Forgiven student loans = no federal taxes
• Thanks to the American Rescue Plan from 2021
• You pay $0 in federal taxes on forgiven debt

Starting January 1, 2026:

• Forgiven student loans = taxable income
• Gets added to your income for the year
• You owe regular income tax on it

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Here's what that means in real numbers

Let's say you have $50,000 forgiven.

If forgiveness happens in 2025:

• Federal taxes owed: $0
• State taxes: Depends on your state
• Total tax bill: $0 to ~$2,500 (state only)

If forgiveness happens in 2026:

• $50,000 gets added to your taxable income
• If you're in the 22% tax bracket: $11,000 in federal taxes
• Plus state taxes: ~$2,500
• Total tax bill: ~$13,500

That's a huge difference.

Should you opt out?

Most people should take the forgiveness. But there are a few situations where opting out makes sense.

1. You can't afford the tax bill

• Your loans are getting forgiven in 2026 or later
• The tax bill would be thousands of dollars
• You don't have savings to cover it

2. Your state will tax it anyway

• Some states tax forgiven loans even when the federal government doesn't
• Check your state's rules
• If you'll owe taxes either way, you might want more time to save

3. You're almost done paying anyway

• You only have a few thousand left
• You could pay it off in the next year
• The tax bill would be close to what you still owe

Reasons to take the forgiveness:

• You have a large balance ($20,000+)
• Your loans are being discharged in 2025 (no federal taxes)
• You can afford the tax bill or set up a payment plan with the IRS
• You're tired of making payments

TuitionHero Tip

Even if you owe taxes on forgiveness, it's usually still cheaper than paying off the full loan balance yourself.

How to opt out (if you decide to)

If you want to opt out, follow these steps:

• Step 1: Contact your loan servicer before October 21, 2025
• Step 2: Tell them you want to opt out of IBR discharge
• Step 3: Get confirmation in writing (email or letter)
• Step 4: Keep making your monthly payments

You can find your servicer by logging into StudentAid.gov.

What if you do nothing?

If you got the email and you don't contact your servicer, here's what happens:

1. After October 21, your info gets sent to your servicer
2. Your servicer processes the discharge (usually 2 weeks)
3. Your loan balance goes to $0
4. You stop making monthly payments
5. You get a 1099-C form at tax time

That's it. You don't need to fill out forms or call anyone. It happens automatically.

State-by-state tax rules

Whether you owe state taxes on forgiven loans depends on where you live.

States that DON'T tax forgiven student loans:

• California
• New York
• Pennsylvania
• Many others

States that DO tax forgiven loans:

• Mississippi
• North Carolina
• Wisconsin
• Check your state's department of revenue website

States with no income tax:

• Alaska
• Florida
• Nevada
• South Dakota
• Tennessee
• Texas
• Washington
• Wyoming
• You won't owe state taxes on forgiveness

What to do right now: Your action checklist

If you got the discharge email:

• Check if your state taxes forgiven student loans
• Calculate how much you might owe in taxes
• Decide if you want to opt out
• Contact your servicer by October 21 if opting out
• [ ]Keep making payments until you see $0 balance

If you think you're eligible but didn't get an email:

• Log into StudentAid.gov
• Check your payment count
• Contact your servicer to ask about your status
• Update your email address with your servicer

To calculate your potential tax bill:

1. Find out your tax bracket (use the IRS website)
2. Multiply your forgiven amount by your tax rate
3. Check if your state taxes forgiven loans
4. Add state taxes to federal taxes
5. That's roughly what you'd owe

TuitionHero Tip

If you're close to forgiveness now, get it while you can. The rules might be different next year.

What's changing with student loans overall

While IBR forgiveness is processing, bigger changes are coming to student loan repayment.

The Trump administration is planning to:

• Eliminate current income-driven repayment plans
• Replace them with two new, less generous options
• Focus less on loan forgiveness overall
• Expand help for borrowers choosing repayment options

Why trust TuitionHero

At TuitionHero, we help you find the best private student loans by comparing top lenders and breaking down eligibility, interest rates, and repayment options. Whether you need additional funding beyond federal aid or a loan without a cosigner, we simplify the process. We also provide expert insights on refinancing, FAFSA assistance, scholarships, and student credit cards to support your financial success.

Frequently asked questions (FAQ)

Will I owe taxes on my forgiven loans?

Depends on when your loans get canceled. Forgiveness in 2025 = no federal taxes. Forgiveness in 2026 or later = yes, you'll owe federal taxes. Your state might tax it either way.

What if I can't afford the tax bill?

You have options. Set up a payment plan with the IRS (they allow this).

Apply for hardship status if you qualify. Or opt out now and save up money while you keep making loan payments. Talk to a tax professional.

Can I still get forgiveness if I consolidated my loans?

Maybe. If you combined Direct Loans with other Direct Loans, you're probably okay. But if you consolidated FFEL or Perkins loans into Direct Loans, your payment clock might have restarted. Call your servicer to check.

What happens to my credit score?

It might drop a little when the accounts close. This happens because you're losing credit history. But the drop is usually small and temporary. Most people's scores recover quickly.

What if I'm also going for Public Service Loan Forgiveness?

PSLF takes 10 years instead of 20-25. It's also always tax-free. You can't get both. Whichever one you reach first is the one you'll get. If you're close to PSLF, that's probably better.

Final thoughts

You've been paying on these loans for years. Maybe decades. You've earned this forgiveness.

Yes, the tax situation is annoying. Yes, the system could be simpler. But for most people with big balances, forgiveness is still way better than paying everything back.

The October 21 deadline is coming fast. Figure out what makes sense for your situation. Check your state's tax rules. Do the math.

And if you have questions about whether to take forgiveness, refinance, or try a different strategy, TuitionHero can help you figure it out. You're so close to being done with these loans. Don't let confusion or missed deadlines get in your way.

Source

• Income-Driven Repayment Plan Loan Forgiveness
• How will a student loan payment count adjustment affect my taxes?
• Trump administration resumes student loan forgiveness for some borrowers, trade group says