How to Know If You Qualify for Student Loan Cancellation
Students can have their federal loans canceled if they follow the rules required by the government. However, to cancel student loan debt, you need to qualify for some “unusual” circumstances or follow a strict program, and few borrowers will be eligible.
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Everybody would love to have their student loan debt erased. Unfortunately, for the majority of student loan borrowers, that’s not going to happen. But in a few situations, federal student loans can be canceled and the debt completely erased.
So, how do you know whether you qualify?
This guide will explain how student loan cancellation works, from how you might be eligible all the way through to what happens after your debt is erased.
In this guide:
- What is student loan cancellation?
- Which student loans can be canceled?
- Student loan cancellation for low-income borrowers
- Discharging student loans in bankruptcy
- How to cancel student loans
- What to do while your request for student loan cancellation is reviewed
- What happens after student loan cancellation?
- What to do if you don’t qualify for student loan cancellation
What is student loan cancellation?
Student loan cancellation typically refers only to federal loans, and it’s a system mandated by the government to protect borrowers in certain situations. It means you’re no longer required to make your student loan repayments, and they will be removed from your credit report.
You can’t have your loans canceled simply because you didn’t finish school, don’t like your degree, or can’t find a job in your field—but you might be eligible if your school made some mistakes, in the case of death or disability, or if you work in a certain job sector.
>> Read more: Student Loan Forgiveness Programs
Unlike federal student loans that come with cancellation protection, your private student loans are unlikely to have cancellation options. But check with your lender to be sure. Some private loans can be canceled if the borrower dies.
>> Read more: Private Student Loan Forgiveness
What’s the difference between cancellation, forgiveness, and student loan discharge?
In effect, these terms mean the same thing, with some minor differences among them.
Cancellation and forgiveness refer to when the remaining balance on your loan is erased due to your income or your having fulfilled the government’s requirements for a student loan forgiveness program, such as the Public Service Loan Forgiveness program (PSLF) for people working in public service jobs.
Discharge, on the other hand, refers to your student debt being absolved when you cannot make payments. This does not relate to your income but rather to situations like borrower death, disability, or the closure of your school.
Which student loans can be canceled?
The following table includes a list of loans that can be forgiven, canceled, or discharged and the loan forgiveness options for each.
In the table, Y represents “yes,” or the eligibility of that loan to be discharged in that circumstance. N represents “no,” and an asterisk (*) indicates “with some conditions.”
|Type of Cancellation||Direct Loans||FFEL Program Loans||Perkins Loans|
|Public Service Loan Forgiveness||Y||Y*||Y*|
|Teacher Loan Forgiveness||Y||Y||N|
|Perkins Loan Cancellation (including Teacher Cancellation)||N||N||Y|
|Total and Permanent Disability Discharge||Y||Y||Y|
|Bankruptcy Discharge (in rare cases)||Y||Y||Y|
|Closed School Discharge||Y||Y||Y|
|False Certification Discharge||Y||Y||N|
|Unpaid Refund Discharge||Y||Y||N|
Student loan cancellation for low-income borrowers
If you don’t qualify for student loan cancellation due to issues like disability or school closure, you still have hope for ditching your student loans through forgiveness.
The federal government offers a number of income-driven and graduated repayment options that, after a set amount of time, forgive your remaining student loan balance.
- Income-Based Repayment (IBR) lasts for 20 to 25 years and is never more than 10% to 15% of your discretionary income (your rate will be determined by when you took out the loan). After this repayment period, any remaining balance on your student loans will be forgiven.
- Pay As You Earn (PAYE) and Revised Pay As You Earn (REPAYE) are similar, lasting 20 to 25 years at 10% of your discretionary income before forgiveness takes place.
- The Income-Contingent Repayment (ICR) plan is a little different, lasting 25 years and determining your payment amount based on whichever is less: 20% of your discretionary income or the amount you would pay on a repayment plan with a fixed payment over 12 years, adjusted according to your income.
In all cases above, any remaining student loans owed after the repayment period would be forgiven. This comes with a catch, though. In all these cases, discharged loans are taxed like taxable income—so be prepared for that cost.
Discharging student loans in bankruptcy
Unfortunately, unlike other types of debt, student loans are notoriously hard—though not impossible—to discharge during bankruptcy. The requirements are stringent, and most bankruptcy proceedings see borrowers file but end up keeping their student loans anyway.
Why does this happen? Canceling student loans in bankruptcy requires proving undue hardship. In other words, a borrower has to clearly and convincingly demonstrate that the student loans are impossible to repay despite their best efforts.
Most people cannot prove this; it requires cases of extreme poverty, being unable to work, or similar circumstances. Legislators are considering easing the requirement on bankruptcy discharge of student loans, but for now, it’s safe to assume the majority will be unable to pursue this avenue.
Instead, if you are having trouble paying your loans but don’t qualify for bankruptcy discharge, explore economic hardship deferment. This comes in stints of one year for a maximum of three years. Student loan payments are put on hold, allowing you to get back on your feet.
How to cancel student loans
Student loan cancellation begins with checking your eligibility. Start with the table above. If you have an eligible loan, you also need to be enrolled in an eligible repayment program, as well as meeting the requirements for discharge, forgiveness, or cancellation.
For example, if you plan to apply for PSLF, you need to enroll in a qualifying repayment plan and ensure you do not miss any qualifying payments for the 10-year duration and that your employment is eligible.
Similarly, if your school was closed, you should have all the proper paperwork to prove this before filing for student loan discharge. You can locate your school among other closed institutions on the Department of Education’s student aid website.
If you think you might qualify for student loan cancellation, speak with your student loan servicer immediately. It can help you enroll in the correct programs and will provide the forms you need to begin the cancellation process. And do not wait—some programs have a time limit.
What to do while your request for student loan cancellation is reviewed
A request for loan cancellation does not mean your loans are erased or no longer your responsibility. You may still be responsible for monthly payments until your request is approved, so ask your loan servicer if you should continue making regular payments to avoid becoming delinquent.
Your application could be denied or only some of your loans could qualify for cancellation. Because defaulted loans are generally not eligible for cancellation (even when the same non-delinquent loan would be), it is important to continue paying your loans for the best chance at success.
What happens after student loan cancellation?
In general, according to the IRS, debt that is canceled before the full loan amount is repaid will be taxed like income. In other words, if you have $50,000 of debt discharged, your taxes will be treated as if you received an extra $50,000 in income on top of your normal earnings that year.
Recent changes lasting until 2025 have ensured that student loan discharge due to death or total permanent disability are not taxable, and some legislators are working to expand this coverage to all cancellation. For now, however, income tax is due on most cases of student loan cancellation.
Borrowers who can prove their insolvency—that their assets are worth less than the amount owed in taxes—might be exempt from paying the income tax associated with student loan debt cancellation. To understand whether this might be the case for you, speak with your tax preparer.
Finally, if you qualify for other types of forgiveness or discharge, speak with your student loan servicer. It will direct you to the appropriate forms to fill out. Once your loan is canceled, you will no longer see it on your credit report, and it will not show up in your servicer’s online loan portal.
What to do if you don’t qualify for student loan cancellation
Not all students will qualify for student loan cancellation; it requires specific and often narrow circumstances.
If you don’t qualify for cancellation but still need help repaying your loans, you’re not out of options. Consider deferment and forbearance, which are options for most federal loans and can offer you the time you need to get on your feet and start making on-time payments.
>> Read more: Student Loan Deferment & Forbearance Calculator
Both options halt your payments for a while. In deferment, you might not be on the hook for the interest your loans accrue while you’re not paying, but a forbearance will still require interest payments.
You are not out of hope if student loan cancellation doesn’t work for you.
>> Read more: How to Get Student Loan Help for Free
Author: Carrie Ott