Student Loan Forgiveness and Cancellation Possible
You may have dreamt of your student loans disappearing — and what a nice dream that is — but would it surprise you to hear that it’s possible?
There are several ways borrowers can have their loans forgiven or discharged, but they have strict requirements. Perhaps the most well-known way is the Public Service Loan Forgiveness (PSLF) program, which is on the chopping block in the Trump administration’s proposed budget.
In the PSLF program, someone working in government or a non-profit that directly benefits the public (there are very strict eligibility guidelines) can apply to get their federal student loan debt forgiven after 120 qualifying payments. The first wave of potentially qualifying loans is set to be forgiven starting this Fall.
Other circumstances in which your federal student loans may be discharged:
- If your school closes. To qualify for discharge for this, you must have not finished the program you had enrolled in when the school closed, or you must have left within 120 days of the school closing.
- Total and permanent disability. If you are getting Social Security Disability Insurance, you may be eligible for federal student loan discharge. Alternately, you may be eligible if your doctor can certify that you are totally and permanently disabled according to the Social Security guidelines.
- Death of the borrower. This applies to all federal student loans, including PLUS loans. PLUS loans taken out by the student’s parents are discharged if the parents die or if the student dies.
- False certification. If for any of the following reasons you should not have been certified for federal student loans, they may be discharged.
- The school falsely certified your eligibility
- The school signed your promissory note or electronic funds transfer agreement without your authorization or knowledge
- Your identity was stolen and used to certify for federal student loans
- You were certified but disqualified from employment in the occupation for which you were trained due to physical or mental condition, age, criminal record, etc.
- Borrower defense. If the school misled you or broke other state laws you may be eligible for federal student loan discharge.
Anyone who attended Corinthian Colleges, who has been in the media lately, can apply for Borrower Defense to try to cancel their federal student loans.
While there are ways to discharge or forgive your federal student loans, they require special circumstances and often proof. Beware: Loan forgiveness amounts are often taxed as income, so while it is very welcome to have your loans forgiven, you may get a not-so-welcome surprise come tax season.
It doesn’t hurt to do your research to see if you are eligible for any of these. If you are not eligible, but need some relief from your student loans, there are options to potentially lower your payments. Income-based repayment plans cap your payments at 10 percent of your income and forgive the rest of your loans after 20 years (for undergraduate degrees).
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