Student Loan Updates for October 2025

Greetings to our indebted friends (and the rest of you). We don’t need to open this one with clever Halloween puns. The real horror show is in Washington, D.C. The ongoing mess there and the very real impact of government shutdowns on employees and their families is no joke. And, as you can probably guess, borrowers are impacted as well. This month’s update was meant to cover four unique stories. But as you’re about to read, they are all tied together in one bad knot.

Impact of the Government Shutdown

An estimated 85–90% of Department of Education employees are currently furloughed, which has put much of their work on hold and will likely worsen the processing backlogs we’ve been covering. Servicers, on the other hand, aren’t directly affected. They are funded through multi-year government contracts that guarantee their income regardless of shutdowns.

What’s unclear is what servicers can actually do without coordination from the Department of Education. Since nearly all processes now flow through Federal Student Aid, it’s possible that many functions have slowed or stopped completely. If you’ve got something in progress, don’t assume it’s business as usual. Contact your servicer and ask directly whether your issue is affected by the shutdown.

Latest on IDR Forgiveness and AFT Lawsuit

Back in August, we shared that the Department of Education had once again paused processing for IDR forgiveness. As expected, the American Federation of Teachers (AFT) filed another lawsuit to get things moving. (Actually, they amended their previous lawsuit.) And, as expected, processing has now resumed. Many borrowers received letters over the past few weeks saying their forgiveness had been approved and was now in progress.

This case is a little different, though. AFT is seeking a class-action lawsuit with several requests. In addition to wanting the DOE to resume forgiveness processing, they also seek to prevent the Department of Education from charging interest during the ongoing SAVE forbearance. They are not, however, asking the court to award damages like interest refunds.

We’ve learned just this week that the DOJ has requested the court to temporarily pause the proceedings due to the shutdown. Apparently, it is difficult to fight a lawsuit when your attorneys are furloughed. Go figure! The court has granted the motion, bringing this lawsuit to a grinding halt.

This is a double-edged sword for borrowers seeking IDR forgiveness. Not only will the shutdown likely delay processing, but now it also gives the DOE more time to slow play it. I want to choose my words carefully here. I am not suggesting that the DOE, or the administration, is intentionally not processing applications. But many people, such as the AFT, obviously believe they are. We’ll be keeping a close eye on this case!

End of Tax-Free Forgiveness Coming December 31

As if that wasn’t enough bad news, those caught up in this mess may also end up facing a large tax bill. Normally, forgiveness under IDR plans is considered taxable income. But thanks to COVID-era relief measures, all loan forgiveness is tax-free through the end of this year. Once the clock strikes midnight on December 31, that exemption disappears. Both existing and new processing delays could push forgiveness into next year, leaving borrowers on the hook for taxes that wouldn’t have applied otherwise. That’s why the timing here matters.

I was actually going to insert the latest backlog figures here. But it seems the shutdown has also prevented DOE from posting those on time. You just can’t make this stuff up.

Critical IBR Changes Delayed

Many borrowers are waiting for the opportunity to switch into IBR without having to show a Partial Financial Hardship (PFH), a requirement that was supposed to be phased out as part of new legislation this summer. Unfortunately, the Department of Education’s latest guidance (prior to the shutdown) says those changes won’t take effect until “winter 2025”.

That means if your initial IBR calculation results in a payment higher than your 10-year standard amount, your application could still be rejected until these updates are implemented. Again, the shutdown is sure to prolong this delay.

In Closing

I just want to take a moment to express that my team and I do not set out each month to write doom and gloom articles. I sincerely wish we could report more good news than bad. The RAP plan is going to be great for many borrowers. The SAVE forbearance (combined with PSLF buyback) is saving many borrowers thousands of dollars. But the truth is that the DOE was already critically short-staffed, and this shutdown could not have come at a worse time. We don’t create the news. We simply do our best to keep you informed.

That’s all for now. Stay tuned, stay informed, and if you’re still waiting for forgiveness, stay patient. We’ll keep you posted as this all unfolds. As always, our team is standing by to assist with a comprehensive student loan consultation or free refinancing assistance.