For the last few weeks we have been looking at student loan debt. Student loan debt is the second highest consumer debt category, after mortgages. The Federal Reserve estimates that Americans owe $1.73 trillion in student loans. 43.2 million student borrowers are in debt by an average of $39,351 each.
There are several programs through the Department of Education that allow federal student loans to be forgiven, cancelled, or discharged. These terms mean you are no longer required to repay some or all of your federal student loan.
Unless you apply for and are approved for one of the following programs, it is important to remember that you are responsible for repaying your student loans, and for making those payments on time. It doesn’t matter whether you completed your education, found a job related to your program of study, or were happy with the education you paid for with your loan.
Public Service Loan Forgiveness:
If you are employed by a government or not-for-profit organization, you may be able to receive loan forgiveness under the Public Service Loan Forgiveness (PSLF) Program. PSLF forgives the remaining balance on your Direct Loans (loans from the federal government) after you have made 120 on-time monthly payments under a qualifying repayment plan while working full-time for a qualifying employer.
Teacher Loan Forgiveness:
If you teach full-time for five complete and consecutive academic years in a low-income elementary school, secondary school, or educational service unit, you may be eligible for forgiveness of up to $17,500 on your Direct Loan. You cannot receive a benefit for the same qualifying payments or period of service for Teacher Loan Forgiveness and Public Service Loan Forgiveness.
Closed School Discharge:
If your school closed while you were enrolled or soon after you withdrew, you may be eligible for discharge of your federal student loan. The federal government has also determined that some colleges defrauded students, so their loans are cancelled. (ITT Technical Institute and Corinthian Colleges are two examples of schools whose loan debts were cancelled.)
Perkins Loan Cancellation and Discharge:
You may be eligible to have all or a portion of your Perkins Loan canceled based on your employment or volunteer service. The federal Perkins loan was an option for undergraduate and graduate students who showed exceptional financial need. But as of Sept, 2017, new Perkins loans are no longer available. They featured a fixed 5% interest rate and, at nine months, a longer grace period than other student loans.
Total and Permanent Disability Discharge or Discharge Due to Death:
If you’re totally and permanently disabled, you may qualify for a discharge of your federal student loans. The same is true for student borrowers who have died.
Discharge in Bankruptcy:
Federal student loans are rarely discharged if a person declared bankruptcy, but it does happen in some cases. If you are declaring bankruptcy, ask you lawyer about this.
False Certification Discharge:
You may be eligible for discharge of your federal student loans if you took out the loans to attend a school and the school did something or failed to do something related to your loan or to the educational services that the loan was intended to pay for. This means the post-secondary school breached their contract.
• Your eligibility to receive the loan was falsely certified by the school.
• Your eligibility to receive the loan was falsely certified through identity theft.
• The student withdrew from school, but the school didn’t pay a refund of your loan money that it was required to pay under applicable regulations.
Eligibility for Parent Borrowers:
Parents may have taken out PLUS loans to help fund a child’s college costs. As with loans made to students, a PLUS loan can be discharged if the parent dies, becomes totally and permanently disabled, or if the loan is discharged in bankruptcy. The parent PLUS loan may also be discharged if the child for whom you borrowed dies.
Talk to your loan servicer to see whether you can apply for any of the loan forgiveness programs discussed in this article. And pay attention to whether Congress will be offering additional programs to deal with the problem of student loan debt.