Millions of Americans must repay private and federal student loans many years after college. Studies show that one in eight Americans has an active student loan debt to repay. In other words, over 43 million Americans fall in this category. These staggering results have recently caused lawmakers to push for official student loan forgiveness programs.
Student Loan Forgiveness
As of 2022, the total private and federal student loans owed by Americans reached an excess of $1.7 trillion. Thus, the majority of the residents have some form of debt they owe. Currently, mortgage loans are the most common in the US, while student loans are a close second.
Therefore, many show interest in the student loan forgiveness program. For example, how it works and whether they are eligible to apply. This article will explain what sets a loan discharge apart from loan forgiveness. You’ll also see how to qualify and apply for a student loan forgiveness, discharge, or cancellation.
According to a 2021 study, the average student loan owed by Bachelor’s degree holders was over $32,000. For graduate students, the average student debt is over six times this amount. Thankfully, certain events qualify you for student loan forgiveness, cancellation, or discharge.
What Is Loan Forgiveness?
In short, getting loan forgiveness would mean that you no longer have to repay a loan debt. Also, depending on the type, it may cover only a part or cancel the entire loan.
There are different groups loan forgiveness might fall into. Loan cancellation and loan discharge are popular terms all relating to loan forgiveness. However, they do not cover the exact same areas. We’ll compare what each brings to the table in the following sections.
Difference Between Student Loan Forgiveness, Cancellation, And Discharge
You’ve probably heard the terms loan forgiveness, loan discharge, and loan cancellation used as synonyms. While they generally mean an exemption from debt repayment, they all apply to various scenarios.
When your job type qualifies you for a student loan discharge, it’s loan forgiveness or cancellation. However, when certain other factors, such as permanent disability, exempt you from student loan repayment, it’s called a loan discharge.
Your options for loan forgiveness might be different if you took out private student loans. If you’ve taken private loans, it’s best to speak with your loan servicer to know your options. On the other hand, users of federal student loans can qualify for loan forgiveness if they meet specific criteria.
You’ll need a Direct Loan or Federal Family Education Loan (FFEL) to qualify for a loan discharge. Other than that, outside factors can also play a hand in your eligibility. For example, if you file for bankruptcy or your school shuts down before you can finish your program, you could qualify for a discharge.
However, barring those examples, every borrower still remains responsible for their loan repayment. Even if you were a minor when you received the loan or are unhappy with your education due to the loan, you are still obligated to repay it.
Various Student Loan Forgiveness, Cancellation, And Discharge Types
This section will detail an overview of the available types of student loan forgiveness. We also included some types of loan cancellation and discharge. The types of loan forgiveness we’ll discuss are available for people with federal student loan debts.
Public Service Loan Forgiveness
The Public Service Loan Forgiveness program (PSLF) is a loan forgiveness program to offer public servants debt relief. Such student loan forgiveness programs encourage borrowers to consider certain career paths.
This program by the United States federal government permits borrowers of Direct Loans to receive loan forgiveness if they meet the conditions.
First, the person would have to work full-time in public service. Also, they must have made on-time monthly payments for at least ten years straight. These repayments would have to fall under a qualifying repayment plan to count for the public service loan forgiveness.
Besides the 120 qualifying monthly payments, the borrower would have to work for a qualifying employer before they can file for a public service loan forgiveness.
The list of employers includes federal, state, or local government agencies. Individuals working in some specific non-profit organizations might also qualify for a public service loan forgiveness.
For example, the person must be a full-time direct employee, as contract workers do not qualify for public service loan forgiveness.
When determining an individual’s qualification for loan forgiveness, their daily tasks do not matter. Instead, it only matters if their employer meets the requirements of a qualifying employer.
People with private student loans meeting all other criteria would not qualify, as they cannot consolidate such loans into Direct Loans. However, you can consolidate other federal student loans into your Direct Loan. For instance, people with direct student loans such as PLUS loans and subsidized and unsubsidized Stafford loans may qualify for the PSLF program.
Aside from that, you’ll also need to be under a qualifying repayment plan, such as an income-driven repayment plan. These include plans such as Pay as You Earn and Income Contingent Repayment.
If your loan forgiveness application is approved under this plan, your remaining balance will be forgiven. Also, there will be no tax implications for this loan forgiveness.
Teacher Loan Forgiveness Program
The teacher loan forgiveness program was also designed to encourage federal student loan borrowers to consider academic career choices. Borrowers with a Direct Loan or FFEL program debts may apply for the teacher loan forgiveness program if they meet some criteria.
The first condition for applying for teacher loan forgiveness is to be a full-time teacher at a low-income elementary school. You must have worked for at least five full years in such a school to qualify.
The school you teach in could be an elementary school, a secondary school, or an educational service agency. This teacher loan forgiveness program makes qualified persons eligible for up to $17,500 of loan forgiveness.
Whether your loans are Direct Loans or federal Stafford loans, you may apply for this loan forgiveness program. However, keep the full list of conditions in mind before applying.
For example, note that you should not have had any remaining balance on Direct Loans or FFEL loans as of October 1998. Also, your five-year consecutive employment as a full-time teacher must include at least one year after the 1997/1998 academic year. Furthermore, another key aspect is to be teaching in an elementary or secondary school that serves students from low-income families.
You must have also taken the federal loans before the end of your five consecutive years of teaching service. Even if you did not complete one of the academic years, you might still qualify depending on the reasons for your non-completion.
If you were able to complete at least half of an academic year, your application would pull through if your absence was due to one of the following:
- You are a member of a component of the United States Armed Forces and received a call to active duty for over 30 days.
- You had a medical condition listed under the Family and Medical Leave Act of 1993.
- In case you could not acquire post-secondary education in an area of study in line with the teaching service you provide at your employment. For you to qualify, this endeavor must have been on at least a half-time basis.
You cannot concurrently apply for this plan and the public service loan forgiveness (PSLF) plan. Under the PSLF rules, you may not be eligible to apply to both programs with the same qualifying payments.
Perkins Loan Cancellation And Discharge
Such loan cancellation is only available for borrowers who took out a federal Perkins student loan. On this note, remember that the Federal government stopped the Federal Perkins loan program in September 2017 after running for 60 years. This loan program was for undergraduate and graduate students with financial constraints.
Even though the Perkins loan is no longer taking new loan applications, thousands of people are still paying off their old college Perkins loans. Loan forgiveness is available for this loan program, and only individuals working in public service are eligible.
If borrowers can meet certain criteria, they may achieve 100% of their student loan debt forgiven. For starters, they must work in the public sector. However, the student loan debt amount forgiven and the rate of your debt cancellation would depend on your career choice and the duration of your current employment.
Most times, loan cancellation for a Perkins loan does not occur at once. Instead, the process would usually continue over a span of five years, in increments. Usually, the forgiveness payment schedule would follow this pattern:
The first two years: 15% of the original loan amount
Years three and four: 20% of the loan amount
Year five: 30% of the loan amount
Some jobs that qualify for this loan cancellation include firefighters, nurses and medical technicians, law enforcement or correctional officers, and a host of others.
Because the Perkins Loan is school-based, you must contact the school that made the loan to apply for cancellation. You should also contact the student loan servicer handling your loan account.
Closed School Discharge
Students with Direct Loans, FFEL program loans, and Federal Perkins loans are eligible for this type of loan forgiveness. With this program, borrowers can receive a 100% loan cancellation if the school they enrolled in closed down before the end of their program.
You must have all your financial aid records ready to obtain this loan cancellation. This loan cancellation also applies to you if the school closes shortly after you withdraw.
If your school shut down before you could finish your program, you’re eligible for a discharge. Also, you still qualify if you were away on a leave of absence during your school’s closure.
Given you first received a disbursement of federal student loans before July 1st, 2020, and your school closed during a 120-day period after you withdrew, you’re also eligible for this cancellation. Conversely, if you received your first loan disbursement after July 1st, 2020, and your school shut down 180 days after your withdrawal, you qualify for this loan forgiveness program.
If you meet all necessary criteria, you’ll need to apply to your loan servicer to begin the process. However, in the meantime, ensure that you do not default on your federal student loan repayment.
Student Loan Discharge Due To Total And Permanent Disability
If a person encounters events that lead to total and permanent disability, they will qualify to get a discharge of their federal student loans.
This kind of student loan forgiveness is available for borrowers with a Direct Loan debt, an FFEL program loan debt, or a Perkins loan debt.
Start by filling and submitting a Total and Permanent Disability discharge application to Nelnet. This application would include the necessary documentation to prove that you have a total and permanent disability.
Regarding the criteria, the records must be from either a medical doctor, the U.S. Department of Veteran Affairs, or the Social Security Administration. For veterans, you should provide the necessary documents from the V.A. proving that you have received a V.A. disability determination.
Individuals with Social Security Disability Insurance or Supplemental Security Income can qualify for a Total and Permanent disability discharge as long as they have the necessary documents. Borrowers in this category will require a Benefits Planning Query or an SSA Query of Award. Before submitting a doctor’s certification, you should ensure that the doctor has a license to practice in the U.S. The doctor should certify on the document that the individual would be unable to participate in any means of gainful employment due to mental or physical disability.
You can have a representative work on your behalf to complete your TPD loan discharge application. After submitting to Nelnet, you’ll receive further guidance about the review process. Note that you may discontinue your student loan repayment during this review process.
Loan Discharge Due To Death
This type of student loan forgiveness is available for borrowers with Direct Loans, FFEL Program, and Federal Perkins loans. In the event of a person’s death, all federal student loans will be discharged.
The complete discharge will occur upon presenting necessary proof of death. An original death certificate, an accurate photocopy, or a certified copy of a death certificate will suffice in this case.
For PLUS loans taken by the individual’s parent, the loan will also be discharged after a person’s death. In the event of the parent’s death, the PLUS loan will also be discharged. To apply for this loan forgiveness due to death, speak to your loan servicer for more accurate information.
Loan Discharge Due To Bankruptcy
There are some cases in which a person might have their federal student loans forgiven if they file for bankruptcy. However, it is not an automatic process, as your creditors can challenge the request.
Start by filing a separate action to get a student loan forgiveness after filing for bankruptcy. You’ll have to file an adversary proceeding in a bankruptcy court. Then, you would appeal to the court that repaying the debt will result in undue hardship for you and your family.
When ruling, the bankruptcy court will consider all factors to determine if your claims of undue hardship are factual. To do this, they would investigate to see if the loan repayment will cause your standard of living to drop below minimal. They’ll also check if evidence proves this hardship will linger as long as it takes to complete repayment.
Another thing the bankruptcy court considers is your behavior towards repayment before you file for bankruptcy. If they confirm that you made considerable efforts toward repayment before filing, you have a chance of getting a discharge.
Also, depending on the court’s verdict, your loan might receive a complete or partial discharge. In some cases, the court might change the terms of your repayment to more favorable ones. For example, they might lower the loan interest rates significantly.
Forgery/ Identity Theft Discharge
If you were a victim of identity theft, and the thieves applied for a loan with your credentials, you can apply for a forgery discharge.
Millions of Americans fall victim to identity fraud yearly. There are several kinds of fraudulent activities that an identity thief might carry out with your information. However, you can fix the situation if they take out a loan in your name.
This kind of student loan forgiveness is available for Direct Loan borrowers. FFEL Program and Perkins Loan Program borrowers may also qualify if the loans are held in the U.S. Department of Education.
Individuals qualify for this student loan forgiveness if someone forged their signature and made a loan application in their name without their knowledge or permission. If your discharge is approved, all outstanding debts will be discharged. Also, the individual would receive a refund of every loan repayment.
Borrower Defense To Repayment
Individuals who took out a Direct Loan qualify to apply for this type of loan cancellation. A borrower defense loan discharge (also called borrower defense) is a discharge of some or all of your federal student loans due to misconduct by your school. You’ll need to file a borrower defense to repayment claim to apply for this.
If the school you took out a student loan from neglected to provide the necessary info regarding the repayment plan, you might be eligible for this student loan forgiveness program. Also, if your school sold you misleading information and violated state laws regarding your loan, you might qualify for a borrower defense discharge.
You will receive a complete or partial discharge if your application is successful. In the case of a partial discharge, you will be liable to continue paying for the debt they did not discharge. This includes the interests accrued.
Lastly, if you had a forbearance period or your collections stopped during the review, they will begin again after a partial discharge.
Unpaid Refund Discharge
You might be eligible for this loan forgiveness if you received a college loan under the William D. Ford Direct Loan Program or the Federal Family Education Loan Program.
If you withdraw from a school after receiving a loan, federal law might have required your school to return part or the entire loan money to your loan servicer.
If your school failed to return the amount it should have, you could be eligible for loan cancellation for the part of the loan repayment your school defaulted on. Before attempting to apply for an unpaid refund discharge, it’s best to contact your school to resolve the matter.
Next, if there seems to be no resolution, you can proceed to apply for discharge. If your school is now closed, it’s best to go for a closed school discharge. Only the amount your school should have paid will be discharged from your loan if your discharge is approved.
False Certification Discharge
If your school falsely certified your loan eligibility, there’s a chance that you could receive a discharge for your federal student loan. Three categories of false certification can qualify you for a discharge if you’re a borrower with Direct Loans or Federal Family Education loans.
These categories are Ability to Benefit, Disqualifying Status, and Unauthorized Payment. The first category is in play when your school bases your eligibility to receive a student loan on your ability to gain from its educational training. Then, you didn’t meet the school’s requirements at the time.
The second category is when the school finds you eligible for a student loan when your status or circumstances (health, criminal record, etc.) says otherwise. So, if you were granted a loan when your eligibility disqualified you from the possibility of getting employed in the profession for which the school was training you.
The third factor describes a situation where your school signs your loan check without your approval or prepares and submits a loan application without your consent. Afterward, the school didn’t remit the loan money to you or use it to cover your school charges.
Parent Borrowers Eligibility
A PLUS loan taken out by an individual’s parent will be discharged in the event of the individual’s death. If the parent who took out the loan becomes totally and permanently disabled, the individual also qualifies for a discharge.
Other scenarios that might lead to the discharge of parent PLUS loan include:
- The school falsely certified your eligibility to receive a student loan
- The individual for whom a parent took out the loan did not finish their program due to the school’s closure
- A case of identity theft caused a false certification of your eligibility to receive a loan
- The student withdrew from the school before the end of the program, and the school refused to refund your loan money as stipulated under applicable laws.
How To Apply for Student Loan Forgiveness
If you think you are eligible to receive a student loan forgiveness based on the information we’ve provided above, you should contact your loan servicer. For borrowers with Federal Perkins Loan debts, you must contact your school or its designated loan servicer. You can visit the Federal Student Aid website to apply for a student loan forgiveness.
Loan Repayment During Application Review Period
Whether or not you’ll need to repay your loan during a review depends on the type of discharge you’re applying for. Some types of loan cancellation may stop collections during review while others won’t.
It’s best to speak with your loan servicer to know if you should continue to make your student loan payments during your application review.
My Application For Loan Forgiveness Was Approved
Your next steps after your application approval will differ depending on the type of discharge. If you qualify for the forgiveness or cancellation of your entire student loan, you no longer need to repay loans.
On the other hand, if your loan forgiveness only covers a part of your loan, you only have to pay the remainder. Depending on the type of discharge, you might also receive a refund of previous payments, either partly or in full.
In these cases, they will remove any negative information regarding your delayed or defaulting payments from your credit report. If no other defaulting loans are on your record, you’ll become eligible for federal student aid.
My Application For Loan Forgiveness Was Denied
It can be devastating if your application does not get approval. However, if you think your application was valid and was denied in error, contact your loan servicer to learn what you can do.
In the meantime, however, you should continue paying your loan following the conditions of the promissory note you signed. So, if you owe due to a Direct Loan or an FFEL loan, you may have other favorable repayment options to explore.
Also, if you find that your loan is in default, there are ways to get out of it. You can either consolidate or rehabilitate your loans. There are several pros and cons to these two options.
They also have different effects on your credit score. Thus, it’s best to compare your options thoroughly before choosing. If possible, you can also pay the defaulted loan in full.
Conclusion: Student Loan Forgiveness Programs
Many college graduates takes the help of student loan forgiveness as it allows Student loan debt to be forgiven for eligible borrowers. However, only certain students qualify for such loan programs.