Student Loan Forgiveness & Cancellation

Student loan debt is the second largest consumer obligation after home loans. Under the right circumstances, you can have your student loan canceled, or you can receive monetary payments to apply to your loan balance in exchange for working for certain organizations or in specific fields in underserved areas.

To determine eligibility for cancellation of your student loan or for payments to reduce your balance, you need to know the type of student loan or loans you have. Some nonfederal student loan programs allow you to cancel or reduce your loan obligation, and you can see if your employer offers a loan cancellation or reduction program — especially if you work in the public sector. Because the federal government backs nine out of 10 student loans, it's likely you have a federal loan. If you have a federal loan, find out what type. Knowing the type will help identify cancellation or repayment options.

Unsure if your loan is federal or private? Search the National Student Loan Data System, which includes information about existing federal loans. Your loan is federal if you find it in the database. Your loan is private if it's not.

Federal loans fall into three buckets:

• William D. Ford Federal Direct Loan Program (Direct Loan)
• Federal Family Education Loan Program (FFEL)

With Direct Loans, the federal government acts as the lender. Various types of Direct Loans are available, including a subsidized loan, in which the interest charged is subsidized (paid by the government) based on need while the student is in school. Most Direct Loans have a 10-year repayment period. Direct Loans comprise four types:

• Direct Subsidized
• Direct Unsubsidized
• Direct PLUS
• Direct Consolidation

Federal Family Education Loans (FFELs) are no longer available, but many borrowers have not yet finished or begun repaying their FFELs. For everyone else, FFELs have been consolidated under the Direct Loans umbrella. One FFEL type, the Stafford Loan, is a subsidized loan, in which the federal government pays loan interest while the student is in school. FFEL loans include:

• Stafford Loans
• Unsubsidized Stafford Loans
• Federal PLUS Loans
• Federal Consolidation Loans

You must repay your federal loans. In some situations, however, your loan may qualify for forgiveness if you experience a change in personal circumstances or your school failed to follow lending or administration procedures. A student's or borrower's death cancels a federal student loan obligation. The federal government allows discharge or reduction of the amount of your student loan under the following six conditions.

See the MoneyGeek Student Loan Forgiveness & Cancellation at a Glance page for a summary of federal loan forgiveness and cancellation programs.

If you suffer from a mental or physical impairment, you may discharge your student loan if you can show your impairment is a total and permanent disability (TPD). A TPD completely relieves you from repaying a Direct Loan or FFEL. A TPD generally means that you have an illness, condition or injury that prevents you from working in an occupation for which you are suited. To have your loan canceled, you must provide proof of your TPD to the U.S. Department of Education (ED).

You can prove your TPD with one of these documents:

• Physician's certification of your TPD, such that your medically determinable physical and mental impairment prevents you from engaging in any substantial gainful activity, and your TPD is expected to result in death, or has lasted or can be expected to last for a continuous period of at least five years
• U.S. Department of Veterans Affairs' (VA) documentation confirming its determination that you are unemployable due to a service-connected disability
• Social Security Administration's (SSA) notice of award for Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI) benefits confirming your next scheduled disability review is five to seven years after your most recent SSA disability determination date

What if your college or university permanently shuts its doors? The upside is that enrolled or recently enrolled students may use the closure to cancel their federal student loans. If your school is unfortunate enough to fall on a slowly growing closure list, you may be able to cancel 100 percent of your loan obligation.

You may be eligible to cancel your student loan obligation if you:

• Withdraw from school and within 120 days your college or university closes
• Enroll at a school that closes and as a result, you do not complete your program (an approved leave of absence still means you are enrolled) You aren't eligible if:
• You fully completed coursework for the institution's program even though you never received a diploma or certificate
• You are completing a comparable program at another school

If it turns out your school falsely certified your eligibility for your federal student loan and you produce sufficient proof of it, you may be able to cancel your loan obligation if your loan is a Direct Loan or FFEL. This type of false certification often comes into play if you did not have a high school diploma or general equivalency diploma (GED). The school you attended through your student loan gave you an exam to ensure that you could benefit from its program; and in giving you the exam, the school did not properly ensure your ability to benefit from the school's program.

Here are a few examples of a school's false certification of your ability to benefit:

• Gave you an exam that was not an approved ED test
• Gave you an exam allowing more time than the prescribed time
• Gave you an exam and allowed you to discuss test answers with other students You must adequately prove your school falsely certified your ability to benefit. Providing as much supporting documentation to go along with your application to the ED is critical, so research on your part is highly beneficial.

If you never received the proceeds of your student loan, you may be able to cancel your federal Direct Loan or FFEL obligation in cases involving forgery of your signature on student loan documents. The person who forged your signature must be someone affiliated with the school.

You can apply to cancel your student loan obligation on this basis at any time. However, in supporting your case and filling out the application, you must submit four samples of your signature, not including the signature on your application. At least two of your sample signatures must have been written within one year of the student loan forgery date. You may find appropriate sample signatures to satisfy this requirement on canceled checks or tax returns with proven dates.

If you successfully prove the school forged your signature, you can cancel the remaining loan balance, plus any related costs and charges. You may also receive reimbursement of loan payments already made.

Another way you may be able to cancel your student loan obligation is that if at the time of your enrollment you would have failed to meet the state's requirements for employment — such as a minimum age, minimum education level, lack of physical or mental condition — in the occupation for which you were being trained.

For example, someone with a felony offense on record who enrolled in a security prison guard program would be eligible for a discharge based on this type of false certification if the applicable state prohibits anyone with a criminal record from working as a security guard. Or, if someone who dropped out of school in 10th grade attended a plumbing technology program in a state that requires plumbers to have a high school diploma or GED, then that individual is eligible for a discharge.

Any loan cancellation under this condition applies to federal Direct Loan and FFEL loans only. If you successfully prove the school falsified your disqualifying status, you may cancel the remaining loan balance, plus any related costs and charges, and also receive reimbursement for loan payments already made.

Despite receiving a student loan, the school you attended may not have worked out for you. If you dropped out of the school's program early, you may be entitled to a refund because your school is legally obligated to return the money to the lender and refund the loan balance to you. If it failed to refund your entitled amount under federal law, you may be eligible for an unpaid refund cancellation. It doesn't matter if your school has closed down.

If you've completed at least 60 percent of the loan period, however, you aren't entitled to a refund. If you never attended classes or only attended the school for a brief period, you should be able to obtain a cancellation of your entire student loan obligation, provided you and the school tried to first resolve the issue within 120 days of submitting your refund application to the ED.

The amount by which your loan obligation is reduced depends on the refund amount you failed to receive. You may reduce the balance of your loan obligation by the entitled refund amount, plus interest and other related charges. You remain obligated for the remaining balance after the refund application.

To calculate your refund, you need information about:

• The tuition
• The school's refund formula
• The percentage of the course or term you completed

Look for the information in the school's catalog or enrollment agreement. If you have trouble finding it, inquire with state licensing agencies to see whether they have the information. The school's refund formula often mirrors a state policy. But if your school does not have its refund formula available, you can use the ED's substitute formula.

If you are a recent graduate or in the planning stages of financing your education, depending on the profession you've chosen — perhaps as a teacher, attorney or health professional — you might be able to take advantage of a career-specific loan forgiveness program. The goal of many of these programs is to entice more individuals to dedicate their careers to certain professions, often to work in underserved areas or specific locations with higher need.

Because these programs set out formal career requirements, you must plan your career choices early. Many programs address federal student loans.

See the MoneyGeek.com Student Loan Forgiveness & Cancellation at a Glance page for or a summary of career-based loan forgiveness and cancellation programs.

Full-time teachers who have taught at least five consecutive academic years, may be eligible for student loan forgiveness of as much as $17,500 through the Teacher Loan Forgiveness Program. The program requires that you teach in certain elementary or secondary schools or educational service agencies serving low-income families, with at least five years of teaching experience under your belt. It restricts the types of federal loans eligible for forgiveness to specific Direct Loans (excludes Direct PLUS and Direct Consolidation loans) and FFELs (excludes Federal PLUS and Federal Consolidation loans). Loan forgiveness amounts vary depending on the circumstances, but to receive the maximum $17,500 amount, you must be a highly qualified full-time math, science or special education teacher and meet certain other requirements.

Some conditions disqualify you from eligibility. For example, you are not eligible if:

• You had an outstanding balance on a Direct Loan or FFEL as of Oct. 1, 1998
• You had an outstanding balance on the date you obtained a Direct Loan or FFEL after Oct. 1, 1998
• You are in default on a subsidized or unsubsidized loan and you have not made satisfactory repayment arrangements (not eligible for loan forgiveness for the defaulted loan)

Sidebar: Make sure to look up whether the school where you teach qualifies as a low-income school. Any elementary or secondary school operated by the Bureau of Indian Education or operated on an Indian reservation by an Indian tribal group under contract with the bureau meets the low-income school requirement.

Many other teacher loan forgiveness programs are available, and eligibility depends on various factors, such as the state or district where you teach, and the grade level and subject you teach. You can identify suitable programs using the American Federation of Teachers' online database.

If you are a health or medical professional or student, your student loan might be eligible for cancellation in a number of loan repayment programs. In exchange for serving in certain locations, usually a designated site that is underserved, the organization supplies funds to apply to your loan balance. Here's a brief rundown of organizations and available programs.

The National Health Service Corps offers several programs to health field professionals and students. Amounts you receive to repay your student loan are income-tax free. The details of three programs are below.

If you are a qualifying medical student, you may apply up to $120,000 in your final year of schooling to your student loan. To receive the repayment amount, you must commit to serve a minimum period at a specified location.

The three primary requirements are that you work:

• As a medical doctor or doctor of osteopathy student who commits to providing primary healthcare
• For three years (full time) or six years (part time)
• At an NHSC-approved site with a Health Professional Shortage Area (HPSA) score of 14 or higher

The program applies to loans extended by federal, state or local governments, as well as commercial loans obtained for your reasonable educational and living expenses. Some loans do not qualify, such as Parent PLUS loans.

Health professionals — such as physicians, nurses, dentists, psychologists, therapists and pharmacists — may be eligible for state-operated loan repayment programs through the NHSC. Repayment amounts vary among state programs, and you'll need to confirm that your state offers one, as not all do.

The three requirements are that you work:

• As a primary care provider who commits to working in a role that corresponds with your training
• For a minimum of two years (full time) or four years (half time)
• At an HPSA located in the state operating the repayment program

Under the NHSC Loan Repayment Program, primary care medical, dental or health clinicians may receive a maximum of $50,000 to repay student loans in exchange for serving in approved underserved U.S. locations. The amount you receive is given to you at the beginning of your service and depends on your service location.

The two requirements are that you work:

• As a primary care provider who commits to working
• For a specified period (half or full time) depending on the location of your service

The period and location determine the amount you receive.

You'll find detailed eligibility requirements at the National Health Service Corps.

If you already work full time as a licensed, registered nurse at a critical shortage facility or as a nurse faculty member at an eligible nursing school, you may be able to pay off 60 percent of your loan balance in two years through the NURSE Corps Loan Repayment Program. You can reduce your original student loan amount by an additional 25 percent by continuing the program for a third year. The program pays off student loans in return for service in designated hospitals and clinics in underserved areas (HPSA). Your student loan must qualify for the program. Examples of qualifying loans include Stafford Loans, Supplemental Loans for Students, and loans obtained to pay for tuition and reasonable educational and living expenses for qualified nursing education. Some loans you cannot pay off through this program include Parent PLUS loans and loans for training in vocational or practical nursing.

Research scientists may be able to use one of the eight National Institutes of Health (NIH) Repayment Programs to help pay off student loans. In return for undertaking research that furthers an NIH mission, a researcher can receive $50,000 per year to repay a student loan. To qualify, you must hold a qualifying degree, such as M.D., Ph.D., Pharm.D. or D.O. Your student loan balance must also equal at least 20 percent of your salary at the time of the program award. Your salary amount does not include income you earn outside the duties of your organization, and you can reapply for the program more than once. Researchers who apply to renew participation no longer need to satisfy the 20-percent debt-to-income requirement.

Many types of student loans are eligible for these programs, including federal, state or local loans. However, Parent PLUS loans are not eligible. A few programs are exclusive to NIH employees, and some are also available for non-employees.

Veterinarians may tap into the Veterinary Medicine Loan Repayment Program to pay off loans taken to pursue veterinary medicine degrees. By serving in a high-priority veterinarian shortage area for at least three years, you receive $25,000 each year to apply to your loan balance. The loan repayments you receive can be applied to the principal and interest due on government and commercial loans you took out to attend a veterinary medicine college. You must have a doctor of veterinary medicine (DVM) degree or the equivalent from an institution accredited by the AVMA Council on Education, and your student loan debt must be at least $15,000. You must also hold the necessary certifications and secure an employment offer or have a practice in a veterinary shortage situation within the time limit set out in the program agreement you sign. Many types of student loans qualify for the program, provided you took out the loan to pay for your veterinarian training at an accredited college of veterinary medicine.

The Indian Health Service Loan Repayment Program is available to licensed health professionals — such as dentists, nurse practitioners or physical therapists — who agree to practice in a health facility that serves American Indians and Alaska Native communities. You receive up to $40,000 for a two-year service commitment. You may extend your contract annually after the two years to receive additional payments. Many types of student loans are eligible, including federal, state or local loans.

If you're a law school graduate, you might consider looking into whether your school offers a loan repayment assistance program for recent graduates who hold public-sector and government positions or work in lower-paying legal fields. Law school public-interest loan repayment assistant programs (LRAPs) are usually law school-specific, with each school setting its own eligibility program requirements — including minimum salary amounts and loan debt amounts — for student loan forgiveness or cancellation. Besides schools, some state bar foundations, federal programs and state governments also offer programs to law school graduates. Currently, about 24 statewide LRAPS exist to help attorneys repay loans. The American Bar Association provides a list of schools that have programs.

Source: National Center for Education Statistics, Inside Higher Ed

You can find loan forgiveness programs geared to public-sector employees. One program — the Public Service Loan Forgiveness Program — applies broadly to public-sector employees. Other programs, set up by lenders, are specific to AmeriCorps and Peace Corps workers.

Are you a firefighter, police officer or other public-sector worker? You may be able to discharge your remaining Direct Loan or Direct Consolidation Loan balance through the Public Service Loan Forgiveness (PSLF) Program after you work full time (at least 30 hours per week) and submit at least 120 monthly payments toward your loan balance if you work for a:

• Government
• Not-for-profit section 501(c)(3)
• Not-for-profit that provides certain public services

You can combine your hours worked from more than one employer to satisfy the 30-hour time requirement.

In most cases, the program only applies to Direct Loans. Other types of federal loans can be forgiven through the program if included in a Direct Consolidation Loan. Any PSLF payments made before consolidation do not count toward the requirement of 120 monthly payments. The PSLF Program sets strict policies for qualifying monthly payments. With the exception of AmeriCorps or Peace Corps volunteers, who, under the right circumstances, can make a lump-sum payment that counts as 12 qualifying monthly payments, you are generally only allowed to receive credit for one payment each month, even if you make a payment larger than the required amount. As a result, it takes at least 10 years to get a loan forgiven. For this reason, PSLF is more suited to workers who plan to remain in their professions for the long term.

The Segal AmeriCorps Education Award is available to AmeriCorps workers to apply to their student loan balances. The amount of the award varies year to year and depends on the ED's Pell Grant. To be eligible, you must serve a full-time term of national service within a 12-month period. Once you receive the award - totaling around $5,775 - you must use it within seven years. You can earn a maximum of two awards. You may use your award to pay numerous types of student loans, including Direct Loans, Stafford Loans, and Federal Consolidated Loans, as well as loans issued to members by state agencies.

If you are an AmeriCorps VISTA member, you may choose to take a cash stipend at the end of your service instead of the education award. As a VISTA alum, you may also receive up to 15-percent cancellation of your student loan. AmeriCorps limits the number of terms you can serve, which varies depending on the program within AmeriCorps.

The Peace Corps does not administer a loan forgiveness program. But many individual lenders set up programs to assist Peace Corps workers in their student loan repayments. Peace Corps workers may also use the PSLF Program to seek forgiveness for Direct Loan or Direct Consolidation Loans.

Service members have a number of options to reduce student loan debts. The National Guard has a program designed for members who enlist or re-enlist for a minimum six-year term. The U.S. Armed Forces also provide various forms of repayment assistance or relief to service members, which largely depends on your service status.

If you are enlisted, planning to enlist, or previously enlisted with the National Guard, you may be able to participate in the National Guard's Student Loan Repayment Program (SLRP) to reduce your federal student loan, as long as your loan is listed in the ED's National Student Loan Data System (NSLDS) or it is a federal Parent PLUS loan incurred for individual use. The current maximum amount you can receive through the SLRP is $50,000 annually. To be eligible, you must enlist for a minimum six-year term in a qualifying role.

At minimum, you may attempt to postpone repayment of your loan or eliminate interest payment obligations if you are on active duty or are preparing to return to school following active duty. But in some circumstances, you can have your entire loan balance forgiven and canceled.

Following is a list of available loan repayment or forgiveness benefits tied to specific member circumstances.

Although numerous student loan forgiveness and repayment programs exist for federal student loans, borrowers of private loans face fewer formalized options and consumer regulatory protections. Lenders of private student loans rarely offer loan forgiveness and cancellation provisions. In extreme cases, even death doesn't discharge a private student loan, depending on the conditions. It's possible for a parent to co-sign a loan and, if the student passes away or becomes permanently disabled, the legal obligation to pay the loan falls on the parent.

There is over $150 billion in outstanding debt from private loans, which means plenty of borrowers of need assistance. Some movement by private lenders has shown promise that seeking private student loan forgiveness might become easier. Wells Fargo, the second largest lender of private student loans, began a loan modification program back in 2014 that works to significantly reduce payments through lowered interest rates. Shortly after, Citizens Bank similarly began modifying its student loans.

If you have a private student loan with lenders such as these two, you may more easily obtain loan repayment relief. If not, your best approach might be to attempt to negotiate a settlement with the lender. You may choose to contact the lender and make an upfront request to lower your monthly payment, with an interest-rate reduction or lengthening of your loan term. Lengthening the loan term in the long run, of course, means that you ultimately end up paying more, which isn't a great option.

However, many private lenders staunchly refuse to broach the topic of settlement until the loan goes into default, in which case you may experience the following:

• Default on your student loan by ceasing all loan payments
• Your lender turns its attention to you because the last thing it wants is a nonperforming loan
• Begin talks with your lender, convincing it you've been operating under the tightest of budgets with virtually no discretionary spending (make sure you have proper documentation — such as credit card and bank account statements —to back your assertion)
• Your lender will probably offer short-term relief in the form of a lowered interest rate for a few months
• Instead, seek out a settlement that involves complete loan cancellation in exchange for a cash payment from you that is significantly lower than your remaining loan balance

One remaining option for federal or private student loan cancellation is filing for bankruptcy. However, this does not represent the best path to student loan cancellation. Bankruptcy courts set a high bar for bankruptcy filers before they will discharge any type of student loan debt. You must show that continuing to shoulder the repayment obligations of your student loans would cause you undue hardship. Courts have interpreted "undue hardship" by applying various tests and requirements.

Historically, most courts have used the Brunner Test to determine whether you have "undue hardship" before they will discharge your student loan obligations.

Under the Brunner Test, you must definitively show these three conditions apply to your situation:

• Inability to maintain a minimal standard of living - your current income and expenses will fail to maintain a minimal standard of living for you and your dependents if you remain obligated to repay your student loans
• Persistence of conditions during repayment period - the circumstances contributing to your inability to maintain a minimal standard of living will probably continue for a significant portion of the loan repayment period
• Good-faith attempt to repay student loan(s) - you've made a sincere effort to stay current on your student loan payment obligations

The Brunner Test seems straightforward enough. Although it is possible to meet with success, the record shows consumers have had an extremely difficult time passing the test and getting student loans — federal or private — canceled in bankruptcy.