Introduction Paying For and Selecting a College Federal Loans, Private Loans, and How to Tell the Difference Repayment Plans Student Loan Servicers and Ombudsman Offices If You Can't Repay Your Loan Loan Consolidation Programs Loan Cancellation/Forgiveness Programs If Your Loan Defaults Collection Activities Additional Information and Assistance Glossary Index of Resources
Loan Cancellation/Forgiveness Programs
Under certain limited circumstances, you may be eligible to have all or part of your student loan forgiven or cancelled. If your loan is forgiven, you are no longer responsible for repayment. You can determine your eligibility by contacting your loan servicer.
Your federal loan may be cancelled for total and permanent disability that is established one of three ways:
- You have certification from a physician that you are unable to work and the condition has lasted or is expected to last for a continuous period of not less than 60 months;
- You are receiving Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI) benefits; or
- If you are a veteran, you may submit documentation from the U.S. Department of Veterans Affairs (VA) that shows that the VA has determined you are unemployable due to a service-connected disability.
If you work full-time 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. Eligible jobs include employment by federal, state, local, or tribal government; nonprofit tax-exempt organizations; and full-time service in AmeriCorps or Peace Corps positions. Your loan must not be in default, and the 120 payments only count if they were made under certain repayment plans.
If you teach full-time for five consecutive years in a low-income elementary school, secondary school, or educational service agency, you may be able to have as much as $17,500 of your federal loan cancelled. Note that if you have a Perkins Loan, cancellation requirements may be different and if you have Direct PLUS loans only, you are not eligible for this type of forgiveness.
If you are enrolled in an income-driven repayment plan, like “income-based repayment” or “income-contingent repayment,” you may be eligible for loan forgiveness after consistent payments for 20 to 25 years, depending on the terms of the plan.
School closings have become more frequent in recent years. You may be eligible for forgiveness of your federal loans if:
- your school closed while you were enrolled and you cannot complete your program because of the closure or
- your school closes within 120 days after you withdrew.
You are generally not eligible for closed school discharge if you:
- withdrew more than 120 days before the school closed;
- you are completing a comparable educational program at another school through a teach-out agreement with the school or by transferring credits or hours learned at the closed school to the new school; or
- you completed all coursework for your program at the closed school (even if you did not receive a diploma or certificate).
Note, however, that the U.S. Department of Education may extend the 120-day period based on certain circumstances.
Students interested in closed-school discharge should contact their loan servicer about the application process. More information is also available on the Department’s website.
If you live in Minnesota and your school recently closed, you may also be able to find resources from the Minnesota Office of Higher Education.
Since 1995, federal law has provided that students may submit a claim to the U.S. Department of Education (“Department”) to have their federal student loans forgiven. You may be eligible to have the Department forgive your federal student loans if your school committed fraud against you, misrepresented its services to you, or otherwise violated applicable state law.
The Department administers the borrower defense program. Information on how to apply for the program or download an application is available from the Department on their borrower defense to repayment webpage.
While in 2016 the Department issued new regulations making it easier for borrowers to apply for and obtain loan forgiveness in cases of fraud by their school, these regulations were put on hold by the Department in 2017. The Department also has incurred large backlogs of borrower-defense applications since 2016, with many applicants having to wait over a year for their applications to be processed. The Department also announced in December 2017 that successful applicants may only receive partial relief based on the relationship between the applicant’s income and general graduate-income statistics for the program the applicant attended.
When applying for borrower defense, you may also request in your application that your federal loans be placed in forbearance or have collections stopped for up to 12 months. Interest will continue to accrue on your account during the duration of the forbearance, however, and you are obligated to pay back that interest if your loans are not forgiven. You can find information about the forbearance process at the webpage noted above.
If you have questions about borrower defense options, you may also call the federal government’s borrower defense hotline at (855) 279-6207 or send an email to FSAOperations@ed.gov.
Contact your lender or loan servicer as to whether cancellation or forgiveness is an option under your loans due to your circumstances. In general, most private student loans do not offer cancellation or loan forgiveness programs similar to federal student loans.
There is one exception to this, however. The federal Holder Rule was adopted by the Federal Trade Commission (FTC) to (in certain cases) provide options to consumers who otherwise would be legally obligated to make full payment to a creditor despite breach of warranty, misrepresentation, or even fraud on the part of the seller. Students who took out private student loans and believe their school made false representations to persuade them to take out those loans may wish to seek a remedy under the Holder Rule. The Federal Trade Commission has stated that student loans are within the scope of the Holder Rule.
If your loan is forgiven or cancelled, some or all of the forgiven loan amount may be considered taxable income. Loan amounts forgiven pursuant to the Public Service Loan Forgiveness Program, however, are not taxable—according to the IRS. If this is a concern to you, you may wish to check with an accountant concerning the tax consequences of private loan forgiveness.