Cancel your debt with these student loan release programs – Forbes Advisor

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Hundreds of thousands of borrowers have benefited from having their loans forgiven through federal programs, for reasons such as total and permanent disability (TPD), school closures or bankruptcy. But not everyone is eligible for release programs, although there are nearly a dozen at the federal level.

Here’s how to tell the difference between forgiveness and release as well as what you need to qualify.

What is student loan discharge?

Student loan discharge occurs when you are no longer legally obligated to make payments on your student loans due to extenuating circumstances through no fault of yours. For example, if you have a permanent disability and can’t work, you probably won’t be able to earn a salary to pay off your student loan.

However, discharge is different from forgiveness or cancellation of a student loan. Both are usually reserved for those who work in a specific industry or sector for a set length of time. Those who qualify for the Civil Service Loan Relief, for example, must make at least 10 years of qualifying payments before becoming eligible.

9 Federal Student Loan Release Options

When it comes to private student loans, it is up to each lender whether or not to offer a release option. But if you have federal student loans, here are nine release programs to consider:

1. Total and permanent disability

You may qualify for total and permanent disability release by providing documentation from the U.S. Department of Veterans Affairs, Social Security Administration, or a doctor proving that you are totally and permanently disabled.

The only TPD loan servicer is Nelnet. Eligible loans and programs include:

  • Direct loans
  • Federal Family Education Loan Program (FFEL) Loans
  • Perkins Federal Loans
  • Teacher Education Assistance Grants for College and Higher Education (TEACH) Service Obligations

2. Defense of the borrower against repayment

If you were misled by your school or if the school violated state laws, you may be eligible to have your loans canceled through Borrower’s Defense until repayment.

You will need to prove that you were misled by the school or that the school broke the law causing you financial harm. Only direct loans are eligible for this type of discharge. It is also possible that only part of your loans will be repaid and you are still responsible for the rest.

3. Fake certificate

If your school has falsely certified your eligibility to receive a loan, you may be able to have your direct or FFEL loans cancelled. You can qualify in three ways:

  1. Opportunity to benefit: For students who did not graduate or earn a GED prior to entering the school, the institution will likely give a “readiness to benefit” test. If there were any issues with the way the exam was administered or if they failed to pass an exam, the loans could be cancelled. However, this might not be as common, since as of 2012, students are not eligible for federal financial aid without a high school diploma or GED.
  2. Disqualifying status: If you qualified to receive a loan but were not eligible to work in your state for the job the institution was preparing you for, you could receive disqualifying status. For example, you might not meet state requirements for employment in your occupation because of your age, physical or mental condition, criminal record, or other reasons.
  3. Unauthorized signature or payment: If your school signed your name on the loan application or promissory note without your consent, you may be eligible for disqualification for false certification. You are also eligible if the school endorsed your loan check or authorized a transfer of funds without your knowledge. If the loan was not applied to fees you owe the institution or were remitted to you, you may also qualify.

4. Unpaid refund

If you received a loan and withdrew from school before using it, your school may be required to return those funds to you or your loan officer. If the school has not made the return to your loan officer, you may be eligible for a portion of these loans discharged.

5. School closure

You are eligible for release if the institution closed while you were enrolled or shortly after graduation. Direct loans, FFEL loans and Perkins loans are all eligible.

6. False

If a person or business forges your signature on a student loan document, you may be eligible for a release. If you qualify, you may see the entire balance discharged.

7. Death of the borrower

If you die, your federal loans will also be discharged. Proof of death is required, either by a family member or another representative.

Parent PLUS loans are discharged if either the parent who took out the loan on behalf of a student or the student who received the loan. Direct loans, FFEL loans and Perkins loans are eligible.

8. Bankruptcy

Discharge of a student loan due to bankruptcy is not common, but it is possible. When filing for bankruptcy, you will need to show that repaying your student loans would cause undue hardship to qualify. You will need to file a separate action called adversarial proceedings. Your student lender and other creditors may be present at your hearing.

Your loans could be partially or fully discharged, depending on the court’s decision. You may also have to repay your loan, but with modified terms, such as a lower interest rate.

9. Perkins loan release

New Perkins loans are no longer issued from 2017. But if you still have Perkins loans from previous years, you can get them released in the event of bankruptcy, school closure, death or total and permanent disability .

You may be eligible to have some or all of your Perkins loans forgiven, depending on your circumstances.

How to Apply for Student Loan Discharge

Only the federal government and authorized student loan servicers can handle the discharge of federal loans. Although each exit program has its own requirements, you can still follow these steps to apply:

  1. Fill out an application. There are over a dozen different types of forgiveness, cancellation, and release options. Find the program you think you are eligible and complete an application. If you are unsure which you might be eligible for, you can contact your repairer.
  2. Provide documents. Each program has specific requirements for exit, so be prepared to show more than one type of documentation to prove your eligibility.
  3. Track your payments if needed. Some programs require that you continue to repay your student loan while your application is being reviewed. Others will hold your payments during the application process for a set number of days to allow you to submit your application and provide your proof.
  4. Wait for approval. If your application is approved, you may still be responsible for part of your loan. If your loans are fully discharged, you are no longer obligated to make payments. If your request was denied, you will continue or resume payments as you made them previously.
  5. Review all tax implications. Different discharge programs have varying tax implications. In general, discharged loans and other forgiven debts are considered taxable. But each case is different. For those eligible for total and permanent disability release from 2018 to 2025, the amount released will not be considered taxable income.

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