The Department of Education confirmed in updated web guidance last week that it is delaying access to a key federal student loan repayment plan for some borrowers, despite an immediate expansion of the program authorized under legislation passed by Congress earlier this summer. The department’s delay may be preventing certain borrowers from accessing legally authorized federal student loan forgiveness.
The Income-Based Repayment (or IBR) plan is an income-driven repayment plan option that allows borrowers to make payments based on a repayment formula applied to their income and family size. IBR authorizes student loan forgiveness after 20 or 25 years in repayment. IBR is also a qualifying repayment plan for the Public Service Loan Forgiveness program, or PSLF, which allows borrowers to discharge their federal student loans in as little as 10 years if they work in qualifying nonprofit or government employment while meeting other program requirements.
In July, President Trump signed the “One Big, Beautiful Bill Act” which will result in the eventual repeal of several other income-driven plans. But IBR is preserved under the bill. In fact, Congress actually expanded the IBR program in the legislation by immediately removing a key enrollment barrier for circumstances where a borrower earns too much income relative to their federal student loan balance. Despite this, the department acknowledged in web guidance updated earlier this month that this enrollment barrier remains in place and may not be lifted for several more months. That delay is now the subject of a new legal challenge. Here’s what student loan borrowers should know.
How Student Loan Payments And Loan Forgiveness Work For IBR
IBR, which was first created by Congress in 2007, is one of several federal student loan repayment plan programs that allow borrowers to repay their loans based on their income. Other such plans include ICR, PAYE, and SAVE, which replaced the older REPAYE plan. While each of these plans is distinct, historically they all have allowed for student loan forgiveness after 20 or 25 years in repayment. And enrollment in any of these plans is typically required for borrowers who are pursuing PSLF, as well.
But until recently, IBR (as well as PAYE) had a “partial financial hardship” requirement. To have a partial financial hardship, borrowers enrolling IBR must have a calculated monthly payment based on their income that is less than the amount that would be needed to repay their student loans in full over a 10-year repayment term. If their calculated monthly payment would exceed that amount, they cannot enroll in the IBR plan. Borrowers who meet the partial financial hardship requirement and enroll in IBR, but then later earn higher income so that they no longer have a partial financial hardship, can remain enrolled in IBR; they would just have their monthly payments capped at the 10-year payoff amount. In other words, the partial financial hardship requirement has operate as an enrollment barrier for borrowers with higher incomes relative to their student loan balances, but it doesn’t kick borrowers off the IBR plan if they wind up earning too much money later.
Until now, IBR’s partial financial hardship requirement wasn’t that big of a deal for most student loan borrowers. Some income-driven plans offered lower monthly payments than IBR (such as PAYE). Other plans had no partial financial hardship requirement at all (such as ICR and SAVE). So most borrowers who needed to enroll in an income-driven plan, such as borrowers pursuing student loan forgiveness through PSLF, had alternative options even if they were unable to access IBR.
Big, Beautiful Bill Changes Student Loan Repayment Plans
But the “One Big, Beautiful Bill Act” fundamentally changes the federal student loan repayment landscape. The bill will repeal the ICR, PAYE, and SAVE plans by 2028, leaving IBR as the only current income-driven repayment plan option that is preserved.
Separately, legal challenges have also scrambled the federal student loan repayment system. The SAVE plan, which is facing an ongoing legal challenge brought by Republican-led states last year, remains blocked. The Department of Education has also declared that student loan forgiveness at the end of 20 or 25 years under ICR and PAYE is blocked, as well, due to a recent court order in that challenge (although critics dispute that interpretation of the ruling). That effectively means that IBR is currently the only option for borrowers pursuing student loan forgiveness under income-driven plans.
But Congress included a key provision in the “One Big, Beautiful Bill Act:” the removal of the partial financial hardship requirement. Since payments made under ICR, PAYE, and SAVE count toward 20- or 25-year student loan forgiveness under IBR, borrowers can apply to switch to the IBR plan to resume making progress toward debt cancelation. And the elimination of the “partial financial hardship” requirement is designed to facilitate that, so that a borrower’s income will not be a barrier to IBR enrollment.
Department Of Education Delays Access To IBR For Student Loan Borrowers With Higher Incomes
But while the IBR rule change was immediate under the “One Big, Beautiful Bill Act,” the Department of Education has not implemented the change. And new web guidance the department updated last week indicates that the updates may not go into effect for at least another several months.
“We are working to update both our systems and our loan servicers’ systems to implement these changes,” says the department in response to a question about when the updates to the IBR plan will take effect. “We anticipate that the system changes will be completed winter 2025.”
But the implementation delay may be preventing borrowers from accessing key benefits mandated by federal law, including income-driven repayment plans and student loan forgiveness. For example, higher income borrowers who have reached the 20- or 25-year threshold for loan forgiveness under SAVE, ICR, or PAYE, but cannot receive a discharge because the department has blocked student loan forgiveness under those programs due to the SAVE plan legal challenge, may be unable to switch to IBR while the “partial financial hardship” requirement remains intact. This is particularly problematic as student loan forgiveness under income-driven repayment plans will return to being considered taxable again starting next year. In addition, borrowers stuck in the SAVE plan forbearance and want to get on track for PSLF may only be able to access IBR as an alternative repayment plan, but cannot do so due to the department’s delays in updating their systems.
Last week, the American Federation of Teachers filed an amended lawsuit against the department, alleging that the delay in implementing the removal of the partial financial hardship requirement for IBR was unlawfully preventing borrowers from accessing repayment and loan forgiveness benefits fully authorized under federal law.
“The One Big Beautiful Bill Act upon enactment ended any requirement that borrowers have to demonstrate a partial financial hardship to access Income Based Repayment,” said the AFT in a motion for injunctive relief filed this week. “The Department has acknowledged that it has a mandatory duty to offer an Income-Based Repayment plan to borrowers.” Nevertheless, the AFT argues, borrowers are being unlawfully denied access to IBR, leaving some trapped in debt that should otherwise have been forgiven, and putting them at risk of incurring enormous tax liability if the student loan forgiveness they are legally entitled to is delayed until next year.
Other Problems Plague Student Loan Borrowers Applying For IBR
The delayed implementation of the removal of the “partial financial hardship” requirement isn’t the only issue plaguing the IBR program. Borrowers are also contending with a massive application backlog that still tops over one million, despite more than six months of processing after the Department of Education implemented a disruptive pause to the system. In addition, the Department of Education announced earlier this summer that it had suspended student loan forgiveness under IBR for borrowers who reach the 20- or 25-year threshold, despite the fact that IBR faces no legal challenge and is not subject to any court order expressly forbidding the department from implementing IBR student loan forgiveness.
“Generally, ED can and will still process loan forgiveness for the IBR Plan, which was separately enacted by Congress,” says the department in separate web guidance that was last updated in July. “Payments on the PAYE, SAVE, and ICR Plans are counted toward IBR Plan forgiveness if the borrower enrolls in IBR. Currently, IBR forgiveness is paused while our systems are updated to accurately count months not affected by the court’s injunction. IBR forgiveness will resume once those updates are completed.”
The application backlogs and suspension of IBR student loan forgiveness are also subjects of the AFT lawsuit. The department has consistently maintained that its actions are lawful, and officials are expected to file a formal response to the allegations in the suit by early October.