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Do You Need Federal Student Loan Forgiveness?

Did you know that under certain qualifying circumstances, you may be able to apply to the federal government to have your federal student loans discharged or forgiven? This refers to more than the Public Service Student Loan Forgiveness program (PSLF).

Do You Need Federal Student Loan Forgiveness?

According to StudentAid.gov, “You may qualify for student loan discharge (also sometimes referred to as cancellation) due to circumstances such as school closure, a school’s false certification of your eligibility to receive a loan, a school’s failure to pay a required loan refund, or in the case of your death, total and permanent disability, or bankruptcy.”

We examine how this works below.

Federal Student Loan Bankruptcy Discharge

Federal student loans are rarely discharged directly by bankruptcy proceedings, unlike other consumer debt. To obtain a federal student loan discharge in these circumstances, the borrower must initiate an adversary proceeding, a separate lawsuit filed in bankruptcy court. The borrower must prove that making loan payments would be an undue hardship.

The borrower must demonstrate that they cannot maintain a minimal standard of living if forced to repay the debt. The borrower must also show that they made good-faith efforts to repay the student loans prior to the bankruptcy filing. If the court rules in favor of the borrower, the loans may be fully or partially discharged.

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Closed School Discharge

People may qualify for a complete discharge of Direct Loans, Federal Family Education Loan (FFEL) Program loans, or Federal Perkins Loans if their school closes.

To qualify, you must be unable to complete a program of study due to the institutional closure. The borrower must meet one of the following criteria:

• The person was actively enrolled when the school closed.
• The person was on an approved leave of absence when the school closed.
• The school closed within 180 days after the person withdrew from classes.

Borrowers lose eligibility for this discharge if they transfer their credits to another institution to complete a comparable educational program.

Those who have completed all required coursework for the program do not qualify for a closed-school discharge, even if they never received a physical degree or diploma.

False Certification Discharge

A false certification discharge applies if an institution falsely certified a borrower’s eligibility to receive a Direct Loan or an FFEL Program loan.

Unauthorized Signature or Payment

This involves the school signing the borrower’s name on the loan application or promissory note without permission. It also applies if the school endorsed the loan check or signed an electronic fund transfer authorization without the borrower’s knowledge.

Identity Theft

This category covers cases in which a loan was falsely certified due to a proven identity theft against the borrower.

Unpaid Refund Discharge

An unpaid refund discharge provides partial relief on Direct Loans or FFEL Program loans. This situation arises when a student withdraws from an institution, but the school fails to return the required amount of loan funds to the federal loan servicer.

Schools must comply with federal regulations on the return of Title IV funds if a student leaves before completing a term. If the school keeps the money rather than returning it to the Department of Education, the student remains responsible for the balance.

An unpaid refund discharge does not cancel the entire loan. The Department of Education discharges only the portion of the loan that the school was required to refund, plus interest.

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Death Discharge

Federal student loans are completely discharged if the borrower dies. This provision applies to all federal loan types, including Direct Loans, FFEL Program loans, and Federal Perkins Loans.

For Parent PLUS loans, the obligation to repay is discharged if either the parent borrower dies or the student for whom the parent chose to borrow passes away.

To process a death discharge, the loan servicer must receive acceptable proof of death. StudentAid.gov accepts an original death certificate, a certified copy of a death certificate, or an accurate photocopy of a death certificate.

Alternative forms of documentation include verification from a county clerk’s office or other official confirmation of death. Any payments made on the loan after the documented date of death are returned to the borrower’s estate.

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Total and Permanent Disability Discharge

A Total and Permanent Disability (TPD) discharge relieves borrowers from the obligation to repay Direct Loans, FFEL Program loans, or Federal Perkins Loans. It also cancels any remaining service obligations for Teacher Education Assistance for College and Higher Education (TEACH) Grants.

To qualify, the applicant must demonstrate that they are totally and permanently disabled based on documentation from:

Department of Veterans Affairs

Veterans qualify if the agency determines they are unemployable due to a service-connected disability.

Social Security Administration

Borrowers qualify if the agency issues a determination that the next scheduled disability review will occur within 5 to 7 years, or if the person receives Social Security Disability Insurance or Supplemental Security Income benefits based on a prior medical review.

Licensed Physician

A doctor of medicine or osteopathy must certify that the borrower is unable to be employed due to a physical or mental impairment. The impairment must be expected to result in death, have lasted for a continuous period of at least 60 months, or be expected to last for a continuous period of at least 60 months.

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