Student loan debt has long loomed large over millions of Americans, shaping not just wallets but lives, ambitions, and even credit scores. Now, the landscape is shifting once again. On October 8, 2025, the U.S. Department of Education resumed processing student-loan forgiveness for borrowers enrolled in income-based repayment (IBR) plans after a months-long pause, according to Business Insider. At the same time, major credit bureaus are rolling out changes that affect how student loans factor into credit scores, a move that could rewrite the rules of borrowing for years to come.
For many, the news arrived in their inboxes with a simple but powerful subject line: "You’re eligible to have your student loan(s) discharged." These emails, sent to eligible borrowers over the past week, explained that student loan servicers would process the promised debt relief "over the next several months." Borrowers wishing to opt out must do so by October 21, 2025, by contacting their loan servicer. The Department of Education will send discharge information to servicers after that date, and most borrowers can expect their loans to be forgiven within two weeks—though for some, it could take a bit longer.
Income-based repayment plans have served as a lifeline for many, setting monthly payments based on income and offering the hope of debt cancellation after 20 or 25 years of consistent payments. As of the second quarter of 2025, 2 million borrowers were enrolled in these plans, according to Federal Student Aid data. However, the process of granting relief was paused in July as the Education Department worked to ensure payment counts were accurate. The recent resumption marks a pivotal moment for those who have been waiting anxiously for closure on their long-standing debts.
The timing could hardly be more critical. Under a provision in the 2021 American Rescue Plan, student loan forgiveness is currently tax-free—but only until December 31, 2025. After that, forgiven debt could become taxable income, potentially saddling borrowers with hefty state and federal tax bills. That looming deadline has injected a sense of urgency into the process. The American Federation of Teachers, which represents many borrowers in IBR and Public Service Loan Forgiveness programs, filed a complaint in September urging the department to cancel loans for those who have met their payment thresholds before the relief becomes taxable.
"Your loan servicer will notify you if and when your IBR discharge has been processed," the Education Department reassured borrowers in its emails. "It may take some time for your loan servicer to process your discharge and for your account to reflect this change. Most borrowers will have their discharge processed within two weeks, but for some borrowers, processing could take more time." The department also noted that some might want to opt out of relief to avoid state tax liability, but those who do must continue making payments.
Meanwhile, the broader world of student loans is undergoing a transformation of its own. Total U.S. student loan debt hit a staggering $1.814 trillion in 2025, spread across more than 42 million borrowers, according to Lending Tree. The average federal student loan balance per borrower now stands at $39,075, nearly double what it was in 2007, as reported by the Education Data Initiative. The burden is not evenly distributed: older borrowers aged 50 to 61 carry average balances exceeding $46,000 and face increasing repayment difficulties and defaults, according to Best Colleges. Roughly 38% of all borrowers are up to date on payments, but more than 30% are delinquent or in default—a stark reminder of the persistent struggles facing many Americans.
Adding another layer of complexity, credit scoring models are being quietly rewritten. Traditionally, responsible repayment of student loans has helped borrowers build credit, paving the way for mortgages, car loans, and credit cards. But in 2025, the major credit bureaus—Experian, Equifax, and TransUnion—updated their scoring models to exclude some types of student loans, especially government-backed installment loans that are in deferment or part of forgiveness programs.
The Consumer Financial Protection Bureau (CFPB) told TheStreet that these changes reflect an effort to acknowledge the unique features of student loans, such as income-based repayment and the possibility of forgiveness. The goal is to present a more accurate snapshot of a consumer’s current financial status, without penalizing borrowers for longstanding, nondelinquent student debt. But there’s a catch: omitting student loans from credit scores can create a less complete financial picture for lenders, potentially leading to tighter lending criteria or higher interest rates.
For younger borrowers, who often rely on student loans to build their credit profiles, this could mean more hurdles in securing additional credit. "Look at how credit scores are calculated: the length of credit history is weighted at 15%, alongside payment history (35%), and amounts owed (30%), with credit mix and new credit making up the remaining 10% each," explained Robert Powell, CFP, a personal finance expert and former Editor and Publisher of TheStreet. "Since payment history is the largest factor at 35%, borrowers who miss payments or default on student loans wouldn't see their credit score tank from these missed payments." However, Powell cautioned that "borrowers who consistently make on-time payments miss out on building that crucial 35% payment history component. Years of responsible payments essentially don't count."
This shift could be especially significant for prospective homebuyers. Traditionally, a history of managing student loan debt responsibly has helped first-time buyers establish creditworthiness for a mortgage. Without that positive track record, some may face higher borrowing costs or stricter lending hurdles. Refinancing other debts or applying for new credit cards could also become more complicated as credit profiles become "thinner."
So, what should borrowers do now? Experts advise regularly reviewing credit reports from all three bureaus to ensure accuracy, especially in how student loans are reported. Diversifying credit types, monitoring updates from credit bureaus, and consulting financial advisors for personalized credit-building strategies are all recommended steps in this rapidly evolving environment.
All of this comes as the Department of Education is negotiating major changes to student loan repayment under President Donald Trump's "big beautiful" spending law. As Business Insider reported, the department began talks on October 3, 2025, to eliminate existing income-driven repayment plans and replace them with two less-generous options. The Trump administration is also expanding its ombudsman’s office to focus on informing borrowers about repayment—not just debt relief. In May, the department restarted collections on defaulted student loans after a five-year pause, signaling a tougher approach to enforcement.
James Bergeron, acting head of Federal Student Aid, summed up the administration’s stance in a September statement: "Unlike the previous Administration's focus on loan forgiveness, the Trump Administration is taking action to implement meaningful and necessary enhancements to the way student loans are serviced to better serve borrowers and American taxpayers."
With deadlines looming, credit rules shifting, and policy debates raging, student loan borrowers in America face a landscape that is as complicated as ever. For those awaiting forgiveness, the next few months could deliver long-sought relief. For everyone else, staying informed—and proactive—may be the best strategy in a world where the rules seem to change almost overnight.
