Education department forgives student loans for 21,200 borrowers: New changes explained

The Education Department had announced loan forgiveness for more than 21,200 borrowers.

According to new court filings, the loan forgiveness comes under income-driven repayment plans.

However, this relief is short-lived as sweeping changes to the student loan system take effect.

March discharges will consist of 800 PAYE borrowers, 9,900 ICR borrowers, and 10,500 IBR borrowers. All income-driven discharges except those under the SAVE plan are being processed. The SAVE program will be discontinued as soon as possible.

But borrowers who get forgiveness in 2026 have to face new changes.

Student loan discharge is now taxable again. As the American Rescue Plan Act’s tax exemption expired on December 31, 2025, Congress declined to extend it.

This means no matter whether the portion of the loan is forgiven or cancelled, the IRS still treats that forgiven amount as taxable income.

Authorities decide to exempt those who met their repayment milestone before January 1, 2026.

As per new changes, the SAVE plan is ending, and borrowers who were enrolled in it have a deadline till July to switch to another plan.

Those who will fail to switch will automatically be placed into a Standard plan.

From July onwards, the new Repayment Assistance Plan (RAP) will come into effect, allowing for lower payments each month, as well as interest subsidies. However, the borrower has to make payments for at least 30 years before getting any forgiveness, which is more than double the 20 or 25 years currently required by the existing programs.

Students who have taken out a loan from July onwards are no longer eligible for PAYE, ICR, and IBR programs. Instead, their only choice would be RAP.

The scenario is not very different for the estimated 2 million students who are about to graduate this spring. The grace period remains the same at six months.