CANCELLATION - Federal Student Loan Cancellation and Discharge/ Forgiveness

"CANCELLATION - Federal Student Loan Cancellation and Discharge/ Forgiveness" submitted by SchoolGrantsfor Editorial Team and last updated on Monday 9th January 2012

Table of Contents

Some loan programs provide for cancellation of a loan and with your participation in a loan forgiveness program under certain circumstances, such as death or permanent disability of the borrower. Some of the federal student loan programs have additional cancellation provisions. For example, if the student becomes a teacher in certain national shortage areas, they may be eligible for cancellation of all or part of the balance of their educational loans. Repayment assistance is available if you serve in the military; the military pays off a portion of your loans for every year of service. Accepting the responsibility for repaying the money you borrow. It’s worth noting that federal laws make it nearly impossible to discharge a student loan through bankruptcy. Discharge occurs when you are released from your obligation to repay a loan.

In rare cases, your loan, or a portion of it, can be canceled—in other words, you won’t have to pay it back. Your lender can cancel your loan if your college closes and you’re unable to complete your studies; if your college falsely certified your eligibility for a loan; if your identity was stolen and used illegally to take out student loans; if your college failed to make a refund to your lender when one was due (you don’t need to repay the amount kept by the college); or if you become totally and permanently disabled or die. To learn more, contact your lender.

If you include a Perkins Loan in your consolidation loan, you will lose cancellation benefits that are only available in the Perkins Loan Program. If you received certain borrower benefits on a loan, such as interest discounts or rebates, those benefits may be lost if you consolidate the loan. Also, as noted earlier, cancellation benefits on a Perkins Loan are lost if the loan is consolidated.

Note:
If you withdraw from school, you may have to pay back some or all of the federal aid you received for the term. Contact your college’s financial aid office and your academic advisor to understand the possible consequences before you decide to leave school. Remember, even if you don't graduate, can't find a job or aren't happy with your education, you still must repay your loan.

Loan Discharge/Forgiveness

If you meet federally mandated requirements, your federal student loan may be discharged (cancelled), releasing you from all obligation to repay the loan. Discharge/ Forgiveness means releasing a borrower from his or her obligation to pay a loan; usually following the death or permanent and total disability of the borrower, or when the loan has been paid in full. To determine if consolidation is right for you, consider the various loan provisions—including interest subsidy, deferment, forbearance, forgiveness and cancellation. FFEL Program consolidation borrowers have the option of a standard, graduated or income-sensitive repayment schedule. FFEL program borrowers also may elect an income-sensitive repayment method, under which monthly payments are based on income and the amount owed. This plan, however, has no forgiveness provision, so payments continue until the entire FFEL is repaid. There are many other opportunities to pursue student loan forgiveness through civil service work. See: Community Services, Other Ways to Pay and Tax Incentives for Education

Perkins Loan Cancellation and Discharge Summary Chart

Cancellation Conditions * Amount Forgiven
Bankruptcy (in rare cases—cancellation is possible only if the bankruptcy court rules that repayment would cause undue hardship) * 100 percent
Closed school (before student could complete program of study)—applies to loans received on or after Jan. 1, 1986* 100 percent
Borrower’s total and permanent disability ** or death* 100 percent
Full-time teacher in a designated elementary or secondary school serving students from low-income families *, *** Up to 100 percent
Full-time special education teacher (includes teaching children with disabilities in a public or other nonprofit elementary or secondary school ) *, *** Up to 100 percent
Full-time qualifi ed professional provider of early intervention services for the disabled * Up to 100 percent
Full-time teacher of math, science, foreign languages, bilingual education, or other fields designated as teacher shortage areas * Up to 100 percent
Full-time employee of a public or nonprofit child- or family-services agency providing services to high-risk children and their families from low-income communities * Up to 100 percent
Full-time nurse or medical technician * Up to 100 percent
Full-time law enforcement or corrections officer * Up to 100 percent
Full-time staff member in the education component of a Head Start Program * Up to 100 percent
VISTA or Peace Corps volunteer * Up to 70 percent
Service in the U.S. Armed Forces * Up to 50 percent in areas of hostilities or imminent danger
Full-time teacher in a designated educational service agency serving students from low-income families **** Up to 100 percent
Full-time special education teacher (includes teaching children with disabilities in educational service agency) **** Up to 100 percent
Full-time staff member in a prekindergarten or child care program that is licensed or regulated by a state **** Up to 100 percent
Full-time fire fighter **** Up to 100 percent
Full-time faculty member at a Tribal College or University **** Up to 100 percent
Full-time speech pathologist with a master’s degree working in a Title l- eligible elementary or secondary school **** Up to 100 percent
Librarian with a master’s degree working in a Title I-eligible elementary or secondary school or in a public library serving Title I-eligible schools **** Up to 100 percent
Full-time attorney employed in a public or community defender organization **** Up to 100 percent
Service in the U.S. Armed Forces **** Up to 100 percent in areas of hostilities or imminent danger

Sign used in the table means:

* As of Oct. 7, 1998, all Perkins Loan borrowers are eligible for all cancellation benefits regardless of when the loan was made or the terms of the borrower’s promissory note. However, this benefit is not retroactive to services performed before Oct. 7, 1998.

** Total and permanent disability is defined as the condition of an individual who is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death; has lasted for a continuous period of not less than 60 months; can be expected to last for a continuous period of not less than 60 months; or has been determined by the Secretary of Veterans Affairs to be unemployable due to a service-connected disability. For more information on qualifying for this discharge, contact your loan holder.

*** Detailed information on teaching service cancellation/deferment options can be found at www.FederalStudentAid.ed.gov. At the site, click on “Students, Parents and Counselors.”

**** As of Oct. 7, 1998, all Perkins Loan borrowers are eligible for all cancellation benefits regardless of when the loan was made or the terms of the borrower’s promissory note.* Service must include August 14, 2008.

Stafford and PLUS Loan Cancellation and Discharge/Forgiveness Summary Chart

Discharge/Forgiveness Condition Amount Discharged/Forgiven Notes
Borrower’s total and permanent disability or death.† 100 percent For a PLUS Loan, includes the death, but not disability, of the student for whom the parents borrowed.
Full-time teacher for fi ve consecutive years in a designated elementary or secondary school serving students from low-income families. Must meet additional eligibility requirements. Up to $5,000 (up to $17,500 for teachers in certain specialties) of the total loan amount outstanding after completion of the fi fth year of teaching. Under the Direct and FFEL Consolidation Loan programs, only the portion of the consolidation loan used to repay eligible Direct Loans or FFEL Loans qualifies for loan forgiveness. For Direct and FFEL Stafford Loan borrowers with no outstanding balance on a Direct or FFEL Loan on Oct. 1, , or on the date they received a loan on, or after that date. PLUS Loans are not eligible. At least one of the five consecutive years of teaching must occur after the 1997–98 academic year. Teaching at an educational service agency may count toward the required fi ve consecutive years only if the consecutive five-year period includes teaching service at an educational service agency performed after the 2007–2008 academic year. To fi nd out whether your school is considered a low-income school, go to www.FederalStudentAid.ed.gov. Click on “Students, Parents and Counselors.” Or call 1-800-4-FED-AID (1-800-433-3243).
Bankruptcy (in rare cases) 100 percent Cancellation is possible only if the bankruptcy court rules that repayment poses an undue hardship to the borrower.
Closed school (for borrowers who could not complete their program because the school closed while they were enrolled) 100 percent For loans received on or after Jan. 1, 1986.
False loan certification (school falsely certified a borrower’s eligibility to receive a loan) 100 percent For loans received on or after Jan. 1, 1986.
False certification by reason of identity theft (loan was made as a result of the crime of identity theft, as determined by a court) 100 percent Effective July 1, 2006.
School does not make required return of loan funds to the lender Up to the amount that the school was required to return. For loans received on or after Jan. 1, 1986.
Loan forgiveness for public service employees 100 percent of the remaining outstanding balance on an eligible Direct Loan. For a borrower not in default and who makes 120 monthly payments on the loan after Oct. 1, 2007.

Sign used in the table means:

† Total and permanent disability is defined as the condition of an individual who is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death; has lasted for a continuous period of not less than 60 months; can be expected to last for a continuous period of not less than 60 months; or has been determined by the Secretary of Veterans Affairs to be unemployable due to a service-connected disability. For more information on qualifying for this discharge, contact your loan holder.

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