Once you have student loans, there may be some opportunities to have your loans forgiven or canceled or, under certain circumstances, discharged. In this module you will be able to learn more about:
In most circumstances, when you take out a loan you will have to pay back the full amount with interest. Yet in some situations there may be an opportunity to have your loans forgiven, cancelled, or discharged!
In terms of loan forgiveness and cancellation, you usually have to sign up and complete the requirements of a program:
- Public Service Loan Forgiveness
- Teacher Loan Forgiveness
- Income-Driven Repayment
Loans are generally only discharged under extreme situations like:
- School closure
- Total and permanent disability
- Or deceptive practices or errors on the part of your school
While you should generally expect to repay your loan in full, take a look at the rest of the information in this module to see if you would be interested in participating in a forgiveness program or if your situation may qualify your loans for discharge.
What options exist for loan forgiveness, cancellation, or discharge?
If you have federal student loans, it may be possible to qualify for loan cancellation, forgiveness, or discharge. If you have private loans, you should contact your loan servicer to see what options may exist.
Public Service Loan Forgiveness (PSLF)
PSLF provides an opportunity for Public Service workers to have their loans forgiven after a certain period of time.
- Working full-time (30 hours/week or more) for a U.S. federal, state, local, or tribal government or a 501c3 nonprofit organization
- Have Direct Loans (you can consolidate other federal student loans to a Direct Loan)
- Use an Income-Driven Repayment (IDR) plan
- Make 120 qualifying payments (about 10 years)
- If you consolidate other student loans to a Direct loan, it resets the requirement to make 120 qualifying payments
- After 120 qualifying payments, your remaining loan balance is forgiven without tax consequences
- Use the PSLF Help Tool to fill out needed paperwork
Every year (or when you change employers), submit a Public Service Loan Forgiveness: Employment Certification Form.
After you have made all 120 qualifying payments, submit a Public Service Loan Forgiveness: Application for Forgiveness
Teacher Loan Forgiveness
Through this program, full-time teachers in low-income schools may be eligible for loan forgiveness.
- Your loans were taken out after October 1, 1998
- You were a full-time, highly qualified teacher for 5 complete, consecutive academic years (at least one of which was after 1997-1998)
- The elementary school, secondary school, or educational service agency you taught at must serve low-income students
- The loans you are looking to have forgiven need to have been taken out before the end of your 5 years of qualified teaching
- Loan forgiveness up to $17,500 if you teach math or science at the secondary level or special education at the elementary or secondary level
- Loan forgiveness up to $5,000 for all other subjects
- Submit a Teacher Loan Forgiveness Application to your loan servicer once you have met all of the eligibility requirements
All Income-Driven Repayment (IDR) plans come with built-in student loan cancellation after 20-25 years of consistent payments or economic hardship deferment. Unlike other cancellation, forgiveness, or discharge programs, the canceled amount of student loan debt after 20-25 years in an IDR is subject to taxes.
- 20-25 years (depending on IDR plan) of a combination of full monthly contributions ($0 in some circumstances), economic hardship deferment, or contributions under a different repayment plan (in certain circumstances)
- If you have high debt and comparatively low income, you may be eligible for forgiveness of the balance of your loan that remains after 20-25 years
- Apply online through studentaid.gov
Closed School Discharge
If your school closed while you were still in the process of completing your program, you may be eligible to have 100 percent of your federal loans discharged.
If your application for Closed School Discharge is approved, you may not be able to apply credits earned from the closed school toward a comparable program of study at a different school.
- Your school closed
- You were enrolled, on an approved leave of absence, or withdrew within 180 days of the school’s closure
- You don’t need to repay the balance of the loan
- Reimbursement for previously made payments
- The record of the loan and repayment history will be removed from your credit report
- You can find the application on the studentaid.gov website
Perkins Loan Cancellation and Discharge
For those with federal Perkins Loans, you may be eligible for cancellation or discharge based on employment, volunteering, or other certain circumstances.
- Full-time teaching in certain cases
- AmeriCorps or Peace Corps service
- And many other types of employment, see ED’s website for more information
- Up to 100 percent cancellation, forgiveness, or discharge
- Applications should be submitted to the school that provided the loan or your servicer
Total and Permanent Disability Discharge
If you find yourself with a total and permanent disability (TPD), you may be able to have your federal loans discharged.
- Proof of total and permanent disability (TPD) from:
- U.S. Department of Veterans Affairs (VA);
- Social Security Administration (SSA);
- Or a physician
- 100 percent discharge of your federal student loans
- Submit an application through Nelnet once you have gathered the needed documentation
Discharge Due to Death
If the borrower of a federal student loan (or the student on whose behalf the loan was taken out in the case of Parent PLUS loans) dies, the loans will be discharged.
- Proof of death
- 100 percent discharge of the federal loans
- Submit proof of death to the loan servicer
Discharge in Bankruptcy
In extremely limited cases, your loan may be discharged due to bankruptcy. There is no guarantee that your loan will be discharged until the bankruptcy court makes its determination.
- Contact a bankruptcy lawyer to learn more about how you might have your student loans included in a bankruptcy
- All or part of your loan may be discharged
- The terms of your loan may be changed to relieve some of your financial burdens
- Contact a bankruptcy attorney to learn more.
Borrower Defense to Repayment
Certain state laws prohibit your school from misleading you or engaging in other misconduct. If you think your school broke the law, you may be eligible for Borrower Defense to Repayment.
- Your school engaged in misleading activities or other misconduct related to your loan or education in violation of certain state laws
- Loans can be in default or collection
- It has been less than 3 years since you graduated or withdrew from the school
- Potential to have all or part of your loans forgiven and reimbursement for payments previously made
- Fill out an application to request loan forgiveness
False Certification Discharge
In certain cases where your school falsely certified you were eligible for loans, you may qualify for a discharge of your federal loans.
- Your school falsely certified you to receive a loan based on ability to benefit
- Your school certified that you were eligible to receive a loan when you had a disqualifying status that legally prevents you from employment in the field associated with your program of study
- Someone at the school provides an unauthorized signature or payment with respect to loans in your name
- 100 percent of your balance can be discharged, and previous payments can be refunded
Unpaid Refund Discharge
In certain cases, schools are required to return part of your loan to your servicer if you withdraw.
- Your school was required to return part of your loan because you withdrew from the school, but the money was not returned
- The part of your loan that should have been returned may be discharged
Check Your Understanding
#1. Which of the following is not an option for forgiveness, cancellation, or discharge?
The correct answer is Uncompleted Degree Discharge: If you don’t complete your degree or are not happy with the education you received; you are still responsible for paying back your student loans
Discharge in Bankruptcy.
#2. It is easy to have your loans discharged
The correct answer is False: discharge of student loans is generally only granted in extreme situations and may be hard to qualify for.
#3. In order to try to benefit from forgiveness, cancellation, or discharge, you will first need to submit an application to your loan servicer
The correct answer is True: you will not automatically qualify for any of these programs, you need to submit an application