Student Loan Debt Forgiveness

forgivinessThere are a number of reasons that a student loan may be forgiven or discharged. Every statutory right to student loan discharge has specific criteria and applies to specific loan types. To determine if a borrower and their loan(s) qualify for forgiveness consult with an attorney, contact the department of education, read the applicable statutes and submit the required formss.

  • School closure
  • False certification
    • The borrower did not have the ability to benefit
    • Disqualifying status criteria
    • Unauthorized signature
  • Unpaid tuition refund.
  • Disability
  • Death
  • Perkins Loans
  • Teacher Forgiveness
  • Public Service forgiveness
  • Forgiveness

School Closure:  To qualify for discharge the loan must have been made on or after January 1, 1986.  The school or branch of the school that the borrower was attending in pursuit of a degree must have closed while the borrower was enrolled or within 90 days of the borrower withdrawing from school.  There are nuances with regard to this discharge such as the: closure date, correspondence schools, teach outs.  The request for discharge must be by written application except in limited circumstances.

False Certification

The borrower did not have the ability to benefit. This type of discharge is only available in limited cases. To determine if a borrower meets the criteria the following factors must be considered: date borrower was enrolled in school, type of degree if any at the time of enrollment, type of testing if any given to borrower prior to enrollment, language spoken, written and understood by borrower at time of enrollment and the available evidence and proof of inability to benefit.

Disqualifying status criteria
is a discharge based upon a student’s inability to meet minimum state job requirements. Borrowers who at the time of enrollment at the school for a particular program would not meet the requirements for employment in the borrowers’ state of residence in the occupation for which they are training would not be able to perform the job because of physical or mental condition, age, criminal record or other reason accepted by the Secretary.

Unauthorized signature
also known as forgery is another basis for a false-certification discharge. To assert this the borrower must claim that their signature was forged on the loan application, promissory note, loan check endorsement or authorization for an electronic funds transfer. Additionally, the borrower cannot have benefitted from the loan.

Unpaid Refund
if the school failed to provide a refund from the loan due to the borrower the loan is dischargeable.

A borrowers total and permanent disability is grounds for discharge. Prior to 1999, all that was needed to assert this ground for discharge was a doctor certification. However as a direct result of fraudulent claims the law was changed over the next few years and significant changes went into effect as of July 1, 2002. The definition of “total and permanent” disability became stricter. Timing became an issue and a conditional discharge period of three years from onset of disability was added. The borrower cannot be employed, an application must be submitted with all required information complete and supporting documentation attached. The department verifies approximately 70% of the disability applications with the certifying physician. If an application is denied it can be appealed.

The student loan debt obligation ends with the death of the obligor. In the event husband and wife consolidate debt the portion of the debt belonging to the borrower who passed can be discharged.

Perkins Loans
in addition to many of the foregoing grounds for discharge Perkins Loans have additional discharge rights, such as borrowers’’ service in Heat Start in in Military service in an area of “hostilities”. Further Perkins Loans were the first loans to have a teacher forgiveness program that applies to teacher in low-income school districts.

Teacher Forgiveness
In addition to the Perkins teacher loan forgiveness program FFEL and Direct Loan programs are available for borrowers who had no outstanding loan balance as of October 1, 1998. In other words all of the loans had to be originated after October 1, 1998. Forgiveness is also not available while the loans is in default. The forgiveness program will repay up to a maximum of $5,000 for individuals who are full-time teachers over five consecutive years in certain schools that serve low-income families. Generally low income is based upon the school lunch program and the principal of the school would know if it qualifies. The maximum amount that can be discharged is $17,500 for borrowers who teach five consecutive years as highly qualified math or science teachers in eligible secondary schools or as special education teachers in eligible secondary schools or as special education teachers in eligible elementary or secondary schools.

Public Service.
If a borrower has a direct loan, works full time at least 30 hours per week for a 501 (c)(3) not for profit entity or for the government and they make 120 payments (10 years of payments) that are income based, contingent based or standard after July 1, 2007 the borrower can apply for loan forgiveness on the balance of the loan.

General Discharge
Borrowers that set up an income based repayment plan and make payments for 25 years the balance still due at 25 years is dischargeable but the discharged amount is taxable as income.

Borrowers can apply for forgiveness on their own.