Latest news with #studentLoanForgiveness
Forbes
21-05-2025
- Business
- Forbes
Nearly 50,000 Student Loan Forgiveness Applications Are ‘Pending,' With No Clear End Point
The Trump administration last week revealed that nearly 50,000 applications for a key student loan forgiveness 'buyback' program remain stuck in bureaucratic limbo, with no resolution in sight. Some borrowers have been waiting nearly a year for a decision. The new data was included in a Department of Education court-ordered status report filed as part of a broader legal challenge over the administration's failure to process applications for income-driven repayment plans. The department had paused the entire IDR application system after a federal appeals court in February broadened an ongoing injunction that has blocked the SAVE plan, a Biden-era repayment program that reduced borrowers' monthly payments and fast-tracked student loan forgiveness for some. But while the department blamed the IDR application processing pause on the ongoing legal battles, no explanation has been offered for the widespread delays associated with PSLF Buyback applications. Here's what might be going on. PSLF Buyback is a new program launched during the Biden administration to improve access to Public Service Loan Forgiveness, or PSLF. The PSLF program allows borrowers working for eligible nonprofit and government entities to receive student loan forgiveness after making 120 qualifying payments, the equivalent of 10 years. But most periods of deferment and forbearance do not count toward PSLF, even if the borrower is working in qualifying employment during the period. PSLF Buyback is designed to give borrowers an opportunity to petition for non-qualifying deferment and forbearance periods to count toward student loan forgiveness. If approved, borrowers would make a lump sum payment equivalent to what the borrower would have paid under a qualifying repayment plan (typically an IDR plan), multiplied by the number of months being bought back. Borrowers would have 90 days to make the payment upon approval, and they would then receive student loan forgiveness. The program does have important eligibility rules and restrictions, however. PSLF Buyback is only available to borrowers who have at least 120 months of certified, qualifying employment. And the bought-back months (if approved) must get the borrower to the 120-month threshold for student loan forgiveness under the PSLF program. In addition, not all periods are eligible for PSLF Buyback. 'You can't buy back months during which your loan was in any of the following statuses: In-school or In-origination, In-grace, Default, Bankruptcy, Total and permanent disability monitoring,' says Department of Education guidance on PSLF Buyback. In addition, 'You can't buy back any months on loans that are: not a Direct loan, in a paid-in-full status, in a forgiven status, in a discharged status, or included in a Direct Consolidation Loan.' In its court filing last week submitted on behalf of Secretary of Education Linda McMahon, the Department of Education confirmed that – notwithstanding the other restrictions on PSLF Buyback eligibility – most periods of deferment and forbearance are eligible to be counted toward student loan forgiveness through PSLF Buyback. These include hardship forbearances, cancer treatment forbearance, medical or dental residency forbearance, Department of Defense forbearance, AmeriCorps forbearance, general forbearance (including the SAVE plan forbearance), active military duty forbearance, PSLF processing forbearance, and certain other processing forbearances. Notably, a bankruptcy forbearance is listed as a qualifying forbearance in the department's court filing, but it is expressly listed as non-qualifying on the department's PSLF Buyback website. The filing was also noteworthy in confirming that the SAVE plan forbearance is eligible for PSLF Buyback, as many borrowers stuck in that forbearance who are nearing student loan forgiveness eligibility under PSLF have applied for relief through PSLF Buyback. But the department's court filing also unveiled a massive backlog. Out of 50,790 PSLF Buyback applications, only 1,472 were processed as of April 30 (and it is unclear how many of those were approved or denied). That leaves 49,318 PSLF Buyback applications that remain 'pending' as of April 30. The same court filing also revealed a massive backlog of more than 1.9 million IDR applications that remain unprocessed. The Department of Education has argued that following the federal appeals court order in February that broadened the existing SAVE plan injunction, officials had no choice but to shut down the entire IDR application system to update application procedures to ensure compliance with the new court order, resulting in the present backlog. But the department has offered no explanation for the PSLF Buyback backlog, which is effectively blocking student loan forgiveness for up to 50,000 borrowers (although it is unclear how many of those borrowers meet the criteria for approval under the program). PSLF itself is not facing any legal challenge, and the PSLF Buyback program is not blocked or enjoined by any court. However, it is possible that the processing delays could also be related to the SAVE plan injunction. Assuming many of the pending PSLF Buyback applications are from borrowers who are stuck in the SAVE plan forbearance, the Department of Education may be having difficulty determining the buyback amount for these borrowers. If the department is unable to utilize the SAVE plan repayment formula in light of the ongoing court order blocking SAVE, there may be questions about how the PSLF buyback amount should be calculated. One potential option would be for officials to calculate the buyback amount using one of the other available IDR plans that are not blocked, such as Income-Based Repayment or Pay As You Earn. But to do that, the Department of Education may need updated income information from borrowers. That shouldn't be a problem, as requesting income information from borrowers applying for PSLF Buyback is supposed to be a normal part of the process in certain cases. 'If you were not in an IDR plan before or after the months you're buying back, we'll request tax information for that calendar year to determine the amount that you would have paid under an IDR plan,' says Department of Education guidance. 'If your deferments or forbearances cross over multiple tax years, then we will need your tax information for each year.' But it's also possible that due to recent mass layoffs at the department, there simply isn't sufficient staffing to efficiently process thousands upon thousands of case-specific applications for student loan forgiveness, particularly when additional information (such as updated income data) may be required. Borrowers stuck in the SAVE plan forbearance who have applied for student loan forgiveness through PSLF Buyback and are still waiting on a decision don't necessarily have great options. But one possibility is to pursue a parallel track of switching to a different IDR plan so that they can resume making qualifying PSLF payments while their buyback application remains pending. 'Borrowers can apply to enroll in a different PSLF-eligible repayment plan,' says Department of Education guidance on the ongoing legal challenges. 'We encourage borrowers to look at the specific terms of each plan to make the best choice for their individual situation. Different IDR plans may require different monthly payments and—in the case of the IBR Plan—borrowers who later leave them may face interest capitalization (where unpaid interest is added to the principal balance). However, payments made under these IDR plans will count toward forgiveness under IDR and PSLF.' However, borrowers who apply to change to a different IDR plan will have to get in line behind the 1,985,726 pending IDR applications associated with that backlog. The bottom line is that given the ongoing processing delays across the board, many borrowers applying for student loan forgiveness through PSLF may be stuck in limbo for quite some time.
Forbes
12-05-2025
- Business
- Forbes
GOP Will Extend Student Loan Forgiveness Tax Relief, But Only Narrowly
UNITED STATES - APRIL 9: Chairman Jason Smith, R-Mo., left, and ranking member Rep. Richard Neal, ... More D-Mass., conduct the Ways and Means Committee hearing on the "Trump Administration's 2025 Trade Policy Agenda," in Longworth building on Wednesday, April 9, 2025. U.S. Trade Representative Jamieson Greer testified. Smith unveiled a sweeping tax proposal that would narrowly extend certain student loan forgiveness tax benefits while allowing other provisions to expire. (Tom Williams/CQ-Roll Call, Inc via Getty Images) Republican House lawmakers on Friday unveiled legislation that would narrowly extend student loan forgiveness tax relief for borrowers and their families due to death and disability. But loan forgiveness for most borrowers under other programs would revert to being taxable again next year, as lawmakers allows key provisions of the tax code to expire at the end of the year. This could put millions of borrowers at risk of facing massive tax liability associated with debt cancellation. The legislation is just one piece of congressional Republicans' plans to enact much of President Donald Trump's legislative agenda through the budget reconciliation process, which would allow the GOP to pass a massive bill through narrow party-line votes in the House and the Senate. 'Pro-family, pro-worker tax provisions are the heart of President Trump's economic agenda that puts working families ahead of Washington and will create jobs, grow wages and investment, and help usher in a new golden age of prosperity,' said House Ways and Means Committee Chairman Jason Smith (MO-08) in a statement on Friday. Republican lawmakers want to extend and expand an array of tax cuts that are scheduled to expire at the end of 2025 without legislative action. To pay for the costs of those cuts, which could add trillions of dollars to the national debt, GOP lawmakers are proposing significant spending reductions, including major reforms to student loan forgiveness and repayment programs that could cut off debt relief and increase the monthly payment requirements for millions. Here's what the narrow student loan forgiveness tax relief extension would mean for borrowers. Historically, most forms of student loan forgiveness, discharge, and cancellation have been taxable events for borrowers. Lenders and loan servicers would issue a Form 1099-C for the tax year in which the student debt was forgiven, requiring borrowers to report the amount of cancelled debt as 'income' on their federal (and, if applicable, state) tax return. Borrowers would then be required to pay income taxes on that cancelled debt, as if they earned the amount of the forgiven balance in income. For large balances, this can lead to devastating tax consequences unless the borrower can qualify for an exemption, such as through insolvency. In 2017 during the first Trump administration, Republican lawmakers passed the Tax Cuts and Jobs Act which included the slew of tax cuts and benefits that current GOP lawmakers are hoping to extend beyond 2025. Included in that legislation was a temporary exemption for federal student loan forgiveness based on death and disability. While federal student loan borrowers are entitled a discharge upon their death, historically that discharge would have been taxable to the estate. The same was true for borrowers requesting relief through the Total and Permanent Disability discharge program. But the 2017 Tax Cuts and Jobs Act temporarily ended federal taxation on these forms of loan forgiveness until January 1, 2026. Then, in 2021 during the Biden administration, Democratic lawmakers passed the American Rescue Plan Act. Included in that legislation was a provision that broadly exempted all federal student loan forgiveness from taxation under federal law. This meant that borrowers receiving loan forgiveness under other programs – in particular, through income-driven repayment plans – have not had to face federal tax consequences. But this exemption is also set to expire at the end of 2025. 'If your loans are discharged on or after Jan. 1, 2021, and before Jan. 1, 2026, you won't get taxed by the federal government,' says Department of Education guidance on IDR student loan forgiveness. 'Any debt forgiven as a result of IDR forgiveness won't create a federal tax liability for you. The American Rescue Plan Act included a provision temporarily modifying the tax treatment of discharged student loan debt. Specifically, the law excludes from gross income qualifying student loans that are discharged on or after Jan. 1, 2021, and before Jan. 1, 2026. During this period, the amounts of forgiven student loan debt won't be subject to federal taxation.' In the proposed reconciliation legislation unveiled on Friday by GOP lawmakers on the House Ways and Means Committee, the tax relief on student loan forgiveness for TPD discharges and death would be extended. 'In the case of an individual, gross income does not include any amount which (but for this subsection) would be includible in gross income for such taxable year by reason of the discharge (in whole or in part) of any loan described in subparagraph (B)," if the student loan balance was 'otherwise discharged on account of death or total and permanent disability of the student," reads the legislative text. The exemption would cover both the federal TPD discharge program, as well as similar discharge programs for 'a private education loan as defined in section 140(a) of the Consumer Credit Protection Act." The extension of this tax relief would be critical not only for borrowers who may need to request TPD discharge relief in the coming years, but also for borrowers who have already been approved for student loan forgiveness under the program within the last two years. That's because the TPD discharge program has a three-year post-discharge monitoring period, and most borrowers (except for veterans) who are approved for relief under the TPD discharge program would not get hit with the tax consequences until after the three-year post-discharge monitoring period ends. 'You're considered to have received the discharge for federal tax purposes at the end of the post-discharge monitoring period,' says current Department of Education guidance. 'For example, say your discharge was approved in July 2022. If so, you would not be considered to have received the discharge for federal tax purposes until July 2025, at the end of your monitoring period. In this case, the IRS would not consider the discharged loan amount to be taxable income for federal tax purposes.' But borrowers approved for a TPD Discharge starting in 2023 would not end their monitoring period until 2026 or later, after the TPD discharge tax relief provisions would otherwise expire. So the extension of the tax exemption will provide critical relief to these borrowers. However, the GOP legislation would not extend the student loan forgiveness tax relief that is separately set to expire under the American Rescue Plan Act. As a result, starting on January 1, 2026, student loan forgiveness under IDR plans and a handful of other programs will revert to being taxable again, leading to potentially severe tax consequences for borrowers who reach their loan forgiveness threshold in the coming years. Profession-based student loan forgiveness, such as Public Service Loan Forgiveness (or PSLF) and Teacher Loan Forgiveness, should remain tax-free federally as it is always has been, barring any separate legislation by Congress. Most states will mirror the federal tax treatment of student loan forgiveness, but not all. Separately last month, the House Education and Workforce Committee unveiled reconciliation-related legislation that would reshape the federal student loan system. If enacted, the bill would repeal several existing income-driven repayment plans and push out student loan forgiveness thresholds to 30 years for many borrowers, while cutting off loan forgiveness entirely for others. The bill would also impose new restrictions on PSLF, and limit pathways to relief for borrowers whose school closed or engaged in misconduct. The Department of Education also initiated involuntary collections efforts against defaulted federal student loan borrowers last week, putting many at risk of wage garnishment and federal benefits offset. Some borrowers could be trapped in default as a result, with traditional student loan forgiveness pathways cut off. The Student Borrower Protection Center characterized the resumption of collections actions against borrowers in default as "cruel, unnecessary, and will further fan the flames of economic chaos for working families across this country.'
