THE BLOG

The Truth About Loan Forgiveness, Cancellation and Discharge

It's not a myth!

Every student loan borrower has to repay their debt, even if they are unable to find a job after graduating or didn't graduate at all. However, some repayment options can lead to your federal student loans being forgiven, canceled, or discharged.

Aside from the good old-fashioned method of paying off your student debt completely, here are the different ways you can say goodbye to student loans:

Direct, Perkins, and FFEL Loan Discharge

Under certain circumstances, a federal student loan borrower can be relieved of making further payments on their Direct, Perkins, or Federal Family Education (FFEL) loans by having the entire debt discharged. Usually debt will only be discharged in rare and extreme circumstances when a borrower is completely unable to repay their debt -- for example, in the event of death or a major disability, or if they have a valid claim to deny the debt is even theirs (i.e. fraud or identity theft).

Here are the main types of student loan discharges: closed school, total and permanent disability, death, bankruptcy, false certification or unauthorized payment, and unpaid refund.

Perkins Loan Cancellation

The Federal Perkins Loan Program allows borrowers to get their loans canceled through program-specific provisions for performing certain types of employment or public service. Depending on your loan specifications, a percentage of the total balance will be canceled for each year of service. Becoming a teacher or nurse, volunteering in the Peace Corps, serving as a member of the U.S. armed forces, or working in child services are all examples of service positions eligible for partial or full Perkins loan cancellation.

See this chart for a full list of the Perkins loan cancellation provisions.

Teacher Loan Forgiveness

Those who took out federal Direct and/or FFEL loans after October 1, 1998 are eligible for Teacher Loan Forgiveness if they've been teaching full-time at a low-income school or educational service agency for five consecutive years.

Borrowers eligible for Teacher Loan Forgiveness may have up to $17,500 of their subsidized or unsubsidized loans forgiven, excluding all PLUS loans. Click here for more information on Teacher Loan Forgiveness.

Public Service Loan Forgiveness

Federal student loan borrowers with Direct loans are eligible to have their remaining balance forgiven after making 120 on-time payments while working in certain public service jobs, such as government positions or at a 501(c)(3) non-profit organization. Borrowers must be enrolled in certain repayment plans, like Pay as You Earn (PAYE), Income-Based Repayment (IBR), or the new Revised Pay As You Earn (REPAYE), and must not be in default at the time of forgiveness.

Read more about Public Service Loan Forgiveness here.

Income-Driven Repayment Plan Forgiveness

After 20 or 25 years of making reduced monthly payments that are tied to your level of income, your remaining balance is forgiven if your federal student loans aren't repaid in full. Periods of deferment do not count toward the 20 or 25 years. You also may be required to pay income tax on the remaining balance, even though it will technically be forgiven.

The four income-driven repayment plans are Income-Contingent Repayment (ICR), Income-Based Repayment (IBR), Pay As You Earn (PAYE), and the new Revised Pay As You Earn (REPAYE). They each have different eligibility requirements -- read about them here.

Equal Justice Works goes over all of these options in detail in our free student debt e-book Take Control of Your Future, available for download on our website. We also host monthly webinars that provide basic and new information on student loans, including legislative updates and helpful resources.

Ashley Matthews is a Program Manager for Law School Engagement & Advocacy, managing the Student Debt and Student Engagement programs. Prior to joining Equal Justice Works, she worked as Communications Manager for Legal Services Corporation where she helped design strategies to increase congressional awareness of federally funded civil legal aid. She also led the digital content and communications team for PSJD.org, a public service initiative of the National Association for Law Placement (NALP). Ashley received her J.D. from the University of Miami School of Law.