When can my federal student loans beforgiven, canceled, or discharged?
You must repay your loans even if you don’t complete your education, can’t find a job related to your program of study, or are unhappy with the education you paid for with your loan. You also can’t claim that you have no responsibility for repaying your loan because you were a minor (under the age of 18) when you signed your promissory note or received the loan. However, certain circumstances might lead to your loans being forgiven, canceled, or discharged.
The list below is a quick view of the types of forgiveness, cancellation, and discharge available for the different types of federal student loans.
If you want to qualify for Public Service Loan Forgiveness now or in the future, complete and submit the Employment Certification form as soon as possible. Too many borrowers wait to submit this important form until they have been in repayment for several years, at which point they learn that they have not been making qualifying payments. In order to ensure you’re on track to receive forgiveness, you should continue to submit this form both annually and every time you switch employers.
You qualify for cancellation of up to 100 percent of a Federal Perkins Loan if you have served full-time in a public or nonprofit elementary or secondary school system as a
- teacher in a school serving students from low-income families;
- special education teacher, including teachers of infants, toddlers, children, or youth with disabilities; or
- teacher in the fields of mathematics, science, foreign languages, or bilingual education, or in any other field of expertise determined by a state education agency to have a shortage of qualified teachers in that state.
Eligibility for teacher cancellation is based on the duties presented in an official position description, not on the position title. To receive a cancellation, you must be directly employed by the school system. There is no provision for canceling Federal Perkins Loans for teaching in postsecondary schools.
Note that you also qualify for deferment while you’re performing teaching service that qualifies for cancellation. Contact your college or your college’s Perkins Loan servicer for information on applying for deferment.
A teacher is someone (including for example, a school librarian or guidance counselor) who provides elementary or secondary school students with direct services directly related to classroom teaching.
Federal student loans will be discharged due to the death of the borrower or of the student on whose behalf a PLUS loan was taken out.
You must declare Chapter 7 or Chapter 13 bankruptcy and demonstrate that repayment would impose undue hardship on you and your dependents. This must be decided in an adversary proceeding in bankruptcy court. Your creditors may be present to challenge the request.
The bankruptcy courts do not use a single test to determine undue hardship but may look at the following factors to determine whether requiring you to repay your loans would cause an undue hardship:
- If you are forced to repay the loan, you would not be able to maintain a minimal standard of living.
- There is evidence that this hardship will continue for a significant portion of the loan repayment period.
- You made good faith efforts to repay the loan before filing bankruptcy.
It depends on the terms of the bankruptcy court’s determination. The terms may include the following:
- Your loan may be fully discharged, and you will not have to repay any portion of your loan. All collection activity will stop.
- Your loan may be partially discharged, and you will still be required to repay some portion of your loan.
- You may be required to repay your loan, but with different terms, such as a lower interest rate.
Many different repayment plans exist, and switching to a plan that’s a better fit is usually a possibility. Contact your loan servicer if you would like to discuss repayment plan options or change your repayment plan. You can get information about all of the federal student loans you have received and find the loan servicer for your loans by logging in to “My Federal Student Aid.”
Note that you might need your academic records if you plan to attend another school and want to have your coursework at the closed school taken into consideration. So it will be important for you to obtain your academic and financial aid records if your school closes. Contact the state licensing agency in the state in which the school was located to ask whether the state made arrangements to keep the records. The records might also be useful in substantiating your claim for a loan discharge.
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