Student loan forgiveness latest: IDR cancellations resume after union settlement, with key tax timing for 2025

A major shift in the past 24 hours has restarted federal student loan forgiveness for millions of borrowers on income-driven repayment (IDR). Following a legal agreement between the U.S. Department of Education and a national teachers union, processing for time-based IDR forgiveness is back on for eligible borrowers in plans such as Income-Based Repayment (IBR), Income-Contingent Repayment (ICR), and Pay As You Earn (PAYE). The deal also clarifies how some borrowers can avoid an unexpected tax bill tied to discharges finalized after 2025.

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Student loan forgiveness

What changed for student loan forgiveness today

Processing of time-based cancellations under IDR—paused earlier this year amid litigation and policy reversals—has resumed. Agencies will move forward on files where borrowers have hit their 20- or 25-year thresholds (depending on plan and loan type). The agreement also commits the government to regular transparency on backlogs and to removing specific administrative hurdles that previously slowed or blocked approvals.

Crucially, the settlement addresses the looming tax issue. The 2021 law that made most federal student loan forgiveness tax-free expires on December 31, 2025. Under the new terms, many eligible borrowers can use their eligibility date (the day they reached the forgiveness threshold) rather than the later discharge posting date for tax purposes—potentially keeping their relief within the 2025 tax-free window. Final tax treatment is determined by the IRS, but the framework is designed to reduce surprise bills for borrowers who already qualified this year and were waiting on processing.

Who benefits from the restart of IDR forgiveness

Long-time IDR borrowers: Those who have accumulated 20 or 25 years of qualifying time under IBR, ICR, or PAYE, including months credited by the “payment count adjustment” for past forbearance/repayment errors.
Public Service Loan Forgiveness (PSLF) participants: The agreement supports continued processing of “buybacks” or credited months in certain circumstances, helping some borrowers reach the 120-payment mark sooner.
Borrowers denied on technicalities: Some prior denials tied to “partial financial hardship” requirements under IBR are being revisited, with instructions to reapply if you were rejected on that basis since mid-2025.

If you’re in one of these groups and your servicer paused your file, you should see movement as systems update and files are re-queued.

What this means if you’re on SAVE—or were planning to be

The separate SAVE plan remains constrained by ongoing court orders. Many SAVE borrowers have been in administrative forbearance, with interest accrual restarting on August 1, 2025. Today’s development is about time-based IDR forgiveness in IBR/ICR/PAYE and related counting adjustments—not a revival of SAVE enrollment. Borrowers formerly steered to SAVE may need to assess alternative IDR options once new regulations for 2026 are finalized.

Action steps for borrowers right now

Check your qualifying time. Log into your federal aid account and review your “payment count adjustment” totals. If your combined qualifying months hit 240 or 300 (plan-dependent), you may be at threshold.
If you were denied IBR for lack of “partial financial hardship” since July 2025, reapply. The barrier is being removed under the agreement.
Confirm your contact details with your servicer. Notices on approvals, tax timing, or document requests will come fast once files move.
Mind the 2025 tax window. If you reached eligibility this year but your discharge posts later, keep records showing your threshold date. Tax outcomes are ultimately set by the IRS; consider professional advice if your balance is large.
PSLF borrowers: Make sure your employment certifications are current so any credited months can be counted without delay.
Document everything. Save screenshots of qualifying month counts, messages from your servicer, and any letters referencing eligibility or discharge.

Key dates and timelines to watch

Now through December 31, 2025: Files meeting IDR thresholds are being processed; many borrowers qualifying in 2025 may receive decisions before year-end.
January 1, 2026: The temporary federal tax-free treatment of most student loan forgiveness is currently set to expire unless extended by new legislation.
Regulatory changes for 2026: The Department has signaled a consolidation of repayment options beginning in 2026, with legacy plans phased out on a multi-year schedule while protecting existing borrowers.

Frequently asked: eligibility, taxes, and private loans

Does this help private student loans? No. The restart applies to federal Direct Loans (and certain federally held FFEL/Perkins after consolidation).
Parent PLUS? Parent PLUS can be eligible under ICR after consolidation; check your loan types and counts.
Is forgiveness automatic? Some cases are automatic when counts are clear; others require updated income documents or a plan application.
Will I owe state taxes? Many states conform to federal treatment, but not all. Check your state’s rules for 2025.

Today’s restart of student loan forgiveness under IDR is the most consequential development for borrowers since the summer’s legal setbacks. It restores a long-standing promise—time-based cancellation after decades of payments—and offers a pathway to keep 2025 approvals within the current tax-free window. With SAVE still constrained and broader repayment reforms slated for 2026, the immediate priority is simple: verify your counts, respond quickly to servicer requests, and secure your spot in this round of relief while the window is open.