Department of Education Resumes Student Loan Forgiveness Amid Legal Agreement

WASHINGTON, D.C. — The U.S. Department of Education is resuming its student loan forgiveness program following a significant legal agreement reached on Friday. The deal addresses a legal challenge brought by the American Federation of Teachers (AFT) and ensures that loan borrowers will not face tax liabilities when their loans are forgiven.

The announcement came after months of contention regarding delays in processing Income-Driven Repayment (IDR) applications. Winston Berkman-Breen, Legal Director for Protect Borrowers, expressed optimism, stating, “This is a tremendous win for borrowers. They can now rest easier, knowing they won’t face harsh tax bills when their loans get cancelled.”

The agreement reopens pathways for student loan forgiveness under various repayment plans including the Income-Based Repayment (IBR), Income-Contingent Repayment (ICR), and Pay As You Earn (PAYE) plans. The Department of Education will also continue processing Public Service Loan Forgiveness (PSLF) Buybacks, which previously had been mired in delays.

The AFT filed its initial legal challenge earlier this spring, urging the department to expedite loan forgiveness processes after significant delays were reported. The AFT highlighted that these holdups were obstructing borrowers from receiving benefits mandated by Congress.

Under the terms of the legality agreement, no tax form will be filed for borrowers who qualify for discharge. This is crucial as the American Rescue Plan Act protects borrowers from tax liabilities on canceled student loans until December 31, 2023. After that date, borrowers could face steep tax bills if they are forgiven,” added Berkman-Breen.

The agreement appears intended to alleviate concerns about the impending expiration of tax relief. The AFT emphasized the importance of keeping borrowing terms favorable for those eligible for forgiveness before the new legal landscape takes effect.

In conjunction with this resumption, the Department of Education committed to issuing monthly progress reports detailing the implementation of these agreements, aiming for transparency and accountability. “We fully intend to hold them to their word,” Berkman-Breen said.