Being able to forget about a debt altogether—instead of having to pay it back—sounds like a dream come true. But waving goodbye to some types of debt doesn’t always require a Fairy Godmother. For those who qualify for a student loan discharge, it can be possible to make some or all student debt disappear.
Student debt forgiveness, cancellation, and student loan discharge all refer to programs that allow graduates to stop paying off their student loans and cancel out any remaining debt.
There are some slight differences between forgiveness, cancellation, and discharge, generally having to do with the reason for which the debt is discharged.
In each case though, the end result is the same: having a student loan forgiven, canceled, or discharged means no more loan payments and an outstanding balance of zero dollars.
Who Qualifies for Student Loan Discharge?
Student loan forgiveness programs are offered by the federal government for certain individuals working in some public service jobs, including some teaching positions.
With the average annual cost of tuition, fees, room, and board coming in at an average of $21,950 for individuals enrolled in in-state public institutions in 2019-2020, and $49,870 for those attending private schools, it’s unsurprising that many people have to borrow money to fund their education.
The Federal Reserve estimates that some 55% of people under 30 who attended college—and 31% of all adults—had to incur some debt to pay for their schooling, while in all, the total value of all student debt in the U.S. was worth a whopping $1.7-trillion dollars as of December 2020.
While many of these individuals will have to repay their student loans, some may qualify for student loan discharge and forgiveness programs.
Individuals may also apply for a federal student loan discharge under certain circumstances such as total and permanent disability, school closure, and, in some cases, bankruptcy.
Student loan discharge programs are intended for individuals with federal student loans. But the type of loan matters too. With the exception of Borrower Defense to Repayment, which is available for Direct Loans only, all of the below discharge programs are available for both Direct and FFEL Program loans.
Perkins Loans have their own forgiveness and discharge programs, though most of the below scenarios qualify. Note that the Perkins Loan program ended in 2017.
There are no blanket programs or rules about private student loan discharge. While some lenders will discharge a student loan in the event of disability or death, there are no regulations obligating them to do so.
Recommended: What Is the Student Loan Forgiveness Act?
Types of Federal Student Loan Discharge Programs
The federal government offers a number of programs for canceling or discharging student debt.
Forgiveness/cancellation programs are generally available to individuals who:
• work in the public sector, for a government or not-for-profit organization
• or for full-time teachers at low-income schools or educational services agencies, who have been employed there for five full consecutive years.
There are also a number of circumstances under which an individual may qualify to have their student loan discharged. Read on for more details on the different reasons federal student loans may be discharged.
Recommended: Types of Federal Student Loans
Closed School Discharge
Individuals may be eligible for a 100% discharge on some types of student loans if their school closes while they are still enrolled or soon after they withdraw. Students on an approved leave of absence at the time of school closure are still eligible.
There are some exceptions:
• For loans disbursed prior to July 1, 2020, an individual may not have withdrawn from their program more than 120 days before the school closure (180 days prior to closure for loans disbursed after July 1, 2020)
• The individual may not have completed the coursework for their program prior to the closure
Students cannot transfer to another school to complete the program or do so via other means
Total and Permanent Disability Discharge
In order to qualify for a total and permanent disability discharge, an individual must be able to provide documentation that they have become totally and permanently disabled. There are only three allowed sources that can provide the documentation required to qualify:
• the U.S. Department of Veteran Affairs
• the Social Security Administration
• or a physician
Each of these sources carries unique requirements in order to verify eligibility.
Recommended: Student Loan Disability Discharge Eligibility
Discharge Due to Death
A federal student loan may be discharged with acceptable proof of death. Documentation such as a death certificate generally qualifies as acceptable proof of death.
Discharge in Bankruptcy
Though not automatic, it is possible to have a student loan discharged in the event of Chapter 7 or Chapter 13 bankruptcy. This discharge requires a separate legal action, called an adversary proceeding, in which the court must agree that having to continue to repay the debt would impose an undue hardship on the individual.
In addition to discharges granted due to an individual’s personal circumstances, there are also some scenarios where the school’s actions may confer eligibility. These include:
• Borrower Defense to Repayment: if the school engaged in certain types of misconduct based on certain state laws
• False Certification Discharge: if an individual’s school falsely certifies their ability to receive a loan
• Unpaid refund discharge: if an individual withdraws but the school does not return loan funds as required
Recommended: Bankruptcy and Student Loans: What You Should Know
The Takeaway
There are a few programs that allow eligible borrowers to discharge their student loan debt. For private student loans, there is no universal rule or regulation governing discharge.
While getting rid of student debt would indeed be a dream come true for most people, the stringent requirements for receiving federal student loan discharge means many people are not eligible.
But that doesn’t mean there aren’t other ways to reduce the burden. Refinancing a student loan is one way to help lower the total cost of student debt by tapping into more favorable interest rates for qualifying borrowers, which could reduce the total amount of interest paid.
The benefits of federal student loans are eliminated when the loan is refinanced, so those pursuing federal loan forgiveness, and others, may not want to refinance.
SoFi Student Loan Refinance
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If you are a federal student loan borrower, you should consider all of your repayment opportunities including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. Please note that once you refinance federal student loans you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans or extended repayment plans.
IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS, PLEASE BE AWARE THAT THE WHITE HOUSE HAS ANNOUNCED UP TO $20,000 OF STUDENT LOAN FORGIVENESS FOR PELL GRANT RECIPIENTS AND $10,000 FOR QUALIFYING BORROWERS WHOSE STUDENT LOANS ARE FEDERALLY HELD. ADDITIONALLY, THE FEDERAL STUDENT LOAN PAYMENT PAUSE AND INTEREST HOLIDAY HAS BEEN EXTENDED TO DEC. 31, 2022. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE THE AMOUNT OR PORTION OF YOUR FEDERAL STUDENT DEBT THAT YOU REFINANCE WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE FOR MORE INFORMATION.
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