Do you ever wonder under what circumstances you might have your federal student loans forgiven, canceled, or discharged? It’s tough to do, but when faced with certain situations or hardships, students can indeed apply to have federal loans wiped away. This relieves the borrower – permanently – of the responsibility and obligation to repay that debt forever.
Total Permanent Disability (TPD) or Death Discharge
Most federal student loans are eligible for discharge if the borrower becomes totally and permanently disabled or dies. Such a situation discharges Direct Loans, Federal Family Education Loans, and Federal Perkins Loans. To apply for a TPD discharge the borrower must submit information about the disability, and proof, directly to the U.S. Department of Education. There are three ways to show a total and permanent disability:
- The borrower can submit a certification from their physician that shows the borrower is unable to engage in any substantial gainful activity because of physical or mental impairment. The impairment must fulfill one of the following three requirements: have lasted for a continuous period of not less than 60 months; be expected to last for a continuous period of not less than 60 months; or be expected to result in death.
- The borrower can submit a notice of award of either Social Security Disability Insurance or Supplemental Security Income from the Social Security Administration, stating that the borrower’s next scheduled review of their disability will be within 60 to 84 months from the last date of determination of disability.
- If the borrower is a veteran, they can submit documentation from the U.S. Department of Veterans Affairs showing that the agency has determined that the borrower is unemployable due to a disability related to their service in the military.
If the student borrower dies, the federal student loans taken out in their own name will be discharged. When the loan borrower was the parent, taking out PLUS loans on behalf of their child, the loan may be discharged when either the parent or the student dies. In order to apply for this discharge, a family member of the deceased must provide a certified copy of the death certificate to either the school (for a Federal Perkins Loan) or to the loan servicer (for a Direct Loan or a Federal Family Education Loan).
Discharge During Bankruptcy
Obtaining a discharge in bankruptcy is very difficult, because you must show the judge that repayment of the loans would impose undue hardship upon you and your dependents. This normally requires showing the judge that you would not be able to maintain a minimal standard of living if simultaneously making your loan payments.
You also must show that the hardship is continuing and expected to last for a very long time, if not indefinitely. And while different courts use different tests and factors, a judge will likely also look at whether you have made a good faith effort in the past to repay the loan before asking for a discharge.
Your School Falsely Certified You, Made an Unauthorized Payment, or Failed to Make a Refund
If your school made certain mistakes regarding your student loan refund (the money the school paid to you after receiving funds from the federal government), or if you were the victim of identity theft regarding federal student loans, you may apply for a discharge under those circumstances. For example, if your school falsely certified your eligibility to receive a loan even though you did not meet student eligibility requirements.
Or, if the school or another individual signed your name without your permission. Perhaps you withdrew from the school prior to a federal aid disbursement, and the school held onto the money by mistake rather than sending it back to the U.S. Department of Education. In all of these circumstances, and a few select others, you might be eligible for discharge of the related amounts and any interest that has accrued.
Teacher Loan Forgiveness
For borrowers who are teaching full-time in low-income elementary and secondary schools, it is possible to apply for forgiveness of up to $17,500 of federal student loans after five consecutive years of teaching. This special teacher-related loan forgiveness is only available to borrowers who did not have an outstanding balance on a Direct Loan or Federal Family Education Loan prior to October 1, 1998, and the forgiveness cannot apply toward either parent or graduate school PLUS loans. Borrowers with Federal Perkins Loans can apply for a special teacher forgiveness under that loan program.
Federal Perkins Loan Program Cancellation and Discharge
Borrowers employed or engaged in certain types of public service can apply to have a percentage of their Federal Perkins Loan canceled for each complete year of service. The maximum that can be canceled depends on the employment or service engaged in and when the loan was taken out. Some of the qualifying positions include Peace Corps, teaching in low-income areas, working in the medical field, serving in an area of hostilities as a member of the U.S. armed forces, and working in law enforcement. Borrowers hoping to qualify for forgiveness under the program must contact their school to find out how to apply.
Public Service Loan Forgiveness
The Public Service Loan Forgiveness Program is perhaps the best-known path to loan forgiveness, although the program is still so new that the first borrowers to have loans forgiven under this program won’t be eligible for forgiveness until October 2017. To qualify, borrowers must be employed in public service related jobs, including jobs with the government, charities, and certain categories of non-profits, and make 120 payments toward their Direct Loans starting on or after October 1, 2007, when the plan took effect.
There are only certain types of income-based repayment plans that a borrower can be on and still qualify for forgiveness, but the 120 payments need not be consecutive payments. Furthermore, borrowers currently have the option of certifying their jobs annually or waiting until their 120 payments have been made to show that their job qualifies them for forgiveness of their remaining loan balance. One advantage to the program is that as it is currently structured, any forgiven loans will not result in tax liability for the borrower.
When a Loan Cannot be Discharged
There are many situations in which a borrower experiences education- or job-related hardship but will be stuck with monthly loan payments. For instance, even if you don’t complete your degree or cannot find a job in your field of study after graduation, you will be required to continue to make your monthly loan payments. Even if you are unhappy with your school or feel you were charged more for your degree than it was worth, you will be obligated to repay your loans. In addition, private student loans are controlled by the terms of the loan agreement, and forgiveness, cancelation, and discharge of private student loans is quite rare.
Author: Jeff Gitlen
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