Halloween just got a little less spooky for student-loan borrowers.
After receiving emails earlier this month that they are eligible for student-loan forgiveness, borrowers on income-based repayment plans are now seeing the relief: their servicers have zeroed out their balances and confirmed the forgiveness.
Income-based repayment plans give borrowers monthly payments based on their income, with the promise of loan forgiveness after 20 or 25 years, depending on when they first enrolled in the plan. An email from the Department of Education told eligible borrowers that their servicers would notify them when their discharges have been processed, and those notifications are now starting to trickle in.
The emails are coming after the department paused processing of IBR applications earlier this summer due to ongoing litigation over income-driven repayment plans.
“Congratulations! The U.S. Department of Education has forgiven your federal student loans,” the emails dated October 23, multiple of which were reviewed by Business Insider, said.
The email also clarified that this relief is not considered taxable income due to a 2021 provision in the American Rescue Plan that made student-loan forgiveness tax-free through 2025. Borrowers who received the Thursday emails that Business Insider viewed had forgiveness “effective” dates marking the final payments needed under the IBR plans as early as January 2025. That means that even if servicers do not finish processing the relief until next year, borrowers would not be taxed due to the 2025 effective date.
The servicers added that they notified, or will notify, national credit bureaus of the student-loan forgiveness, and that they will refund any payments made after the forgiveness effective date.
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The Department of Education did not immediately respond to a request for comment from Business Insider.
The relief is a rare nugget of good news amid a tumultuous year for student-loan borrowers. Over the summer, the Department of Education paused processing of IBR applications, citing ongoing litigation regarding repayment plans that required the department to update borrowers’ payment counts. The American Federation of Teachers also sued the department earlier in the year, accusing it of failing to process borrowers’ income-driven repayment applications.
Last week, the department reached an agreement with the AFT to process forgiveness for borrowers who reached the payment threshold on income-driven repayment plans. It also agreed to allow the date the borrower made their final payment to be considered as the effective date to avoid new taxes, but it added that the Internal Revenue Service and the Department of the Treasury will have the “final say” on whether the relief is considered taxable income.
A department spokesperson previously told BI that the agreement allows it to “process legitimate loan cancellations once again for borrowers who have been making payments for the requisite number of years.”
