Do I Qualify for Student Loan Forgiveness, Cancellation or Discharge?

In the United States, student loans account for more total debt than credit cards – more than 1.5 trillion dollars in total. That’s a huge number and it shows that paying off student loans is a big deal for most young people.

At Addition Financial, we often have members ask us about student loan forgiveness, cancellation or discharge. They want to know whether they can qualify and if it’s a good idea to apply for forgiveness.

It’s an important question and we’re here to help. Here’s what you need to know.

Is Student Loan Forgiveness the Same Thing as Cancellation or Discharge?

The first thing we want to address is the language we use to talk about no longer needing to pay your student loans. There are three words, but they all essentially mean the same thing.

  • Student loan forgiveness usually refers to a situation where you don’t need to pay your loans because of your job – we’ll talk more about that later.
  • Student loan cancellation is used in the same way. Unlike forgiveness, it can be tied to a job or to certain other qualifications.
  • Student loan discharge is a little different in that it’s used to describe any other situation where you don’t need to pay your loan, such as permanent disability or the closure of a school.

The result in all three is the same. You’ll be freed from your obligation to repay your student loans.

Ways to Qualify for Student Loan Forgiveness

If you’ve got your eye on a job that provides service to others, there’s a good chance you can qualify for student loan forgiveness. The government wants to encourage people to serve where needed.

Here are a few examples:

  1. Become a public school teacher in a low-income area. If you took out a Stafford or Perkins loan, serving for five years as a public school teacher qualifies you for the Teacher Forgiveness Program.
  2. If you’ve been making payments on your loans for a while and you borrowed money under the William D. Ford Federal Direct Loan Program, you can qualify for loan forgiveness under the Public Service Loan Forgiveness Problem. The catch? You’ll need to take a job working for a non-profit organization or a government agency and have made 120 payments on your loan.
  3. Join the military. Every branch of the US military has a loan forgiveness program. The amount of forgiveness is generally tied to the rank you achieve – which means that committing to a longer stint is more likely to get you full forgiveness.

The easiest way to qualify for relief is to see if your income is low enough to get you into the Income-Based Repayment Plan. It says that nobody should be required to pay more than 15% of their discretionary monthly income toward a loan. It may not provide total forgiveness but it can lower your payments and bring them into a range that’s affordable for you monthly.

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Ways to Qualify for Student Loan Cancellation

By law, federal loan programs must provide cancellation options to borrowers. The same does not apply to private loans.

If you have a federal student loan, here are some of the potential things that could help you qualify for a loan cancellation:

  • You take a public service job or a non-profit job (similar to debt forgiveness)
  • You file for bankruptcy (qualification is difficult with bankruptcy but not unheard of)
  • You have a disability that prevents you from working
  • You’re the heir of the borrower and the borrower has died
  • Your school closed or you withdrew
  • Your school misled you or perpetrated a fraud against you

There have been some cases of predatory lending where colleges have been accused of misleading students. If that’s something that happened to you, you should check out your eligibility for loan cancellation.

Ways to Qualify for Student Loan Discharge

A student loan discharge is most likely to occur because of a death or disability. It may sometimes be granted in the case of a bankruptcy.

If you become totally disabled, you may qualify for a full discharge of your student loan. You’ll need documentation of your disability from one of the following:

  • The Veterans’ Administration
  • The Social Security Administration
  • Your personal physician

If you can prove permanent disability, you can get a discharge if you took out a loan under the William D. Ford Federal Direct Loan Program, the Federal Family Education Loan Program, the Perkins Loan program or if you have a TEACH Grant service obligation.

For a bankruptcy discharge, you’ll need to prove that repaying your student loan would cause undue hardship to you or your family. You may qualify for a full discharge, a partial discharge or a reduced payment plan.

Even if you don’t have a public sector job or a disability, you may qualify for relief if your loan payments are more than 15% of your discretionary income. You can find a full list of student loan forgiveness programs – including state programs – here.

If you don’t qualify for student loan forgiveness, cancellation or discharge, you can still save on your monthly payments for your student loans by consolidating your loans at a lower interest rate.

Click here to learn about Addition Financial’s loans and how we can help you.

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College