New: PAYE and ICR Forgiveness Resumes

A major step toward long-awaited debt relief has arrived for borrowers in long-term income-driven repayment (IDR) plans. A recent agreement in the case of American Federation of Teachers (AFT) v. U.S. Department of Education marks a concrete move toward resuming loan forgiveness for borrowers enrolled in Pay As You Earn (PAYE), Income-Contingent Repayment (ICR), and other qualifying IDR plans.

The settlement also includes a key protection: borrowers who qualify for forgiveness by December 31, 2025 will not face unexpected federal tax consequences on forgiven debt — even if their discharge is processed after that date.

Background and Context

Over the past two years, the student loan landscape has been dominated by the rollout — and subsequent litigation — of the SAVE Repayment Plan (Saving on a Valuable Education). The rollout of SAVE stalled under legal challenges, causing a ripple effect across the servicing system.

That pause effectively froze forgiveness processing under other IDR programs, leaving many long-term borrowers in limbo — particularly those who had already met the 20- or 25-year repayment thresholds under PAYE or ICR.

Adding to the urgency was the American Rescue Plan Act, which made all forgiven student debt federally tax-free through 2025. Without resolution, borrowers who reached their forgiveness date this year risked losing that protection if discharges weren’t processed until 2026. The AFT settlement directly addresses that concern, ensuring affected borrowers are shielded from tax liability and that forgiveness processing resumes promptly.

According to Department of Education data released in late 2025, roughly 2.3 million borrowers remain enrolled in PAYE or ICR plans. Of those, nearly 800,000 are within five years of forgiveness eligibility—but many were still waiting on their counts to resume after administrative holds. For some, the recalculation could instantly qualify them for discharge, particularly if prior deferment and forbearance periods were recently credited through the IDR Account Adjustment.

What this means for Borrowers:

This agreement restores movement and hope for borrowers who have spent decades faithfully repaying under IDR plans. Many who have been in repayment for 20–25 years will finally see the forgiveness they’ve earned applied in the coming months.

As a borrower, this is an important time to review your repayment history and confirm whether your forgiveness progress has been updated correctly.

At SDS, we believe in empowering borrowers with clarity whether through our tools, expert support, or advocacy for transparent repayment systems. As we close the year, let’s continue helping borrowers move from confusion to confidence.