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 COVID-19 and Student Loan Repayment 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 federal student loan forgiven. If your loan is forgiven, you are no longer responsible for repayment. You can determine your eligibility by contacting your loan servicer.
Federal student loans may be cancelled for total and permanent disability that is established in one of three ways listed below. Nelnet assists the U.S. Department of Education in administering the Total and Permanent Disability (TPD) discharge process. For more information about the TPD discharge process, you may visit Nelnet’s website at www.disabilitydischarge.com.
- The borrower has certification from a physician that they are unable to work and the condition has lasted or is expected to last for a continuous period of not less than 60 months;
- The borrower is receiving Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI) benefits; or
- If the borrower is a veteran, they may submit documentation from the U.S. Department of Veterans Affairs (VA) that shows that the VA has determined that the borrower is 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 October 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. For more information about this program, consult the Department of Education’s website at: www.studentaid.gov/understand-aid/types/grants/teach
If you are enrolled in an income-driven repayment plan (e.g. Revised Pay As You Earn Repayment Plan, a/k/a REPAYE Plan), 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 of Education administers the borrower defense program, which has undergone significant rules changes, lawsuits, and other controversies in the last decade. However, over $20 billion in federal student loans have been cancelled under this program. Information on standards applied by the Department and how to apply for the program or download an application is available on the Department’s website: www.studentaid.gov/borrower-defense/.
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, visit www.studentaid.gov/borrower-defense/, 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.
Taxability of Loan Forgiveness
Whether forgiveness of a student loan is taxable may depend on the type of loan, the reason for the forgiveness, and the time in which it was forgiven. In 2021, Congress passed the American Rescue Plan Act, which temporarily exempts all federal student loan forgiveness from federal taxation on a general basis through 2025. Otherwise, the below categories of student debt cancellation have been treated as follows:
- Total and Permanent Disability: A federal tax law passed by Congress in 2017 exempts TPD Discharges from federal taxation through 2025.
- PSLF: The IRS has stated that loan discharges granted under the PSLF program are not taxable.
- Borrower Defense: An IRS opinion letter has stated that prior student loans discharges granted under the borrower defense program were not taxable.
- Federal Loans Forgiven after 20/25 Years of IDR Payments: While it is uncertain how discharges will be treated, loan forgiveness that may happen at the end of 20 or 25-year repayment terms under an income-driven repayment plans may be taxable events.
- Private Loan Discharge: If a borrower is able to negotiate discharge of a private student loan, it may be taxable.
State laws also may or may not tax the above forms or other forms of student loan cancellation. Borrowers who are considering applying for forgiveness or have received forgiveness and need tax advice should consult a tax professional.