US Resumes Student Loan Forgiveness for 2.5 Million Borrowers After Legal Settlement

The Trump administration has reversed its prior suspension of student loan forgiveness programs for about 2.5 million borrowers enrolled in income-driven repayment plans, following legal action by the American Federation of Teachers. The Department of Education will resume processing forgiveness for plans like Income-Contingent Repayment, Pay As You Earn, and Public Service Loan Forgiveness, reimbursing borrowers who overpaid while awaiting relief, and ensuring forgiven balances through 2025 are not taxed federally. This clarification alleviates borrowers' concerns about potential tax liabilities if their loans are forgiven after 2025 but before official discharge, as the forgiveness date is considered the effective discharge date. However, state taxes may still apply in some cases. Separately, Republicans have proposed overhauling the federal student loan system by consolidating repayment plans and enforcing accountability on colleges for student loan defaults, aiming to cut federal spending and reform incentives that drive up tuition costs. Additionally, updated UK guidance now clarifies that employers should not deduct student loan repayments from earnings paid after an employee's death, aligning with National Insurance regulations.