By: Lance T. Denha, Esq.
If one has ever been granted a student loan, it is well documented from the outset the loan will be due and payable 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. However, certain circumstances might lead to your loans being forgiven, canceled, or discharged. This summary below is intended to provide a brief description of those certain instances when there is the potential for student loan debt forgiveness.
Total and Permanent Disability (TPD) Discharge
A Total and Permanent Disability discharge relieves you from having to repay Federal Direct Loan (Direct Loan) Program loan, Federal Family Education Loan Program loan (FFEL), and/or Federal Perkins Loan (Perkins Loan) Program or complete a TEACH Grant service obligation on the basis of your total and permanent disability. Before your federal student loans Grant service obligation can be discharged, you must provide information to the U.S. Department of Education (ED) to show that you are totally and permanently disabled. ED will evaluate the information and determine if you qualify for a TPD discharge.
If you, the borrower, die, then your federal student loans will be discharged. The loan is typically discharged when a family member or other representative provides a certified copy of the death certificate.
Discharge in Bankruptcy
Student Loans are not automatically discharged in a bankruptcy. If the borrower files a Chapter 7 or Chapter 13 bankruptcy then you may have your loan discharged in bankruptcy only if the bankruptcy court finds 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.
Closed School Discharge
Borrowers may be eligible for discharge of Direct Loans and FFEL Program loans under either of these circumstances:
• Your school closes while you’re enrolled and you do not complete your program because of the closure or
• Your school closes within 90 days after you withdraw from the institution.
False Certification of Student Eligibility or Unauthorized Payment Discharge
One may be eligible for a student loan discharge of a direct loan or FFEL Program loan in the following circumstances:
• Your school falsely certified your eligibility to receive the loan based on your ability to benefit from its training, and you did not meet the ability to benefit student eligibility requirements.
• The school signed your name on the application or promissory note without your authorization or the school endorsed your loan check or signed your authorization for electronic funds transfer without your knowledge, unless the proceeds of the loan were delivered to you or applied to charges owed by you to the school.
• Your loan was falsely certified because you were a victim of identity theft.
• The school certified your eligibility, but because of a physical or mental condition, age, criminal record, or other reason you are disqualified from employment in the occupation in which you were being trained.
Teacher Loan Forgiveness
If you are a teacher and also a new borrower (i.e., you did not have an outstanding balance on a Direct Loan or FFEL Program loan, and have been teaching full-time in a low-income elementary or secondary school or educational service agency for five consecutive years, you may be able to have as much as $17,500 of your subsidized or unsubsidized loans forgiven.
Public Service Loan Forgiveness
If you are employed in certain public service jobs and have made 120 payments on your Direct Loans (after Oct. 1, 2007), the remaining balance that you owe may be forgiven. Only payments made under certain repayment plans may be counted toward the required 120 payments. You must not be in default on the loans that are forgiven.
In the event a borrower qualifies for any of the aforementioned instances for discharge noted above, one would not be obligated to make loan payments and depending on the type of loan discharge program, the US Department of Education may be required to refund some or all of the payments made on behalf of the loan. In addition, any adverse credit record related to a default might be deleted, and no tax refund offset or wage garnishment will take place to collect on the discharged loan. If the loan was in default, the discharge may erase the default status. It is advisable to discuss with your lender or legal professional regarding the manner in which you may qualify for student loan forgiveness.