In addition, the Biden Administration announced that, in February 2024, it would start canceling federal student loan debts for anyone who initially borrowed $12,000 or less and has been in repayment for at least 10 years if they first enroll in the SAVE income-based repayment plan. The timeframe for loan forgiveness increases by one year with each additional $1,000 of debt. So, for example, a student who took out $14,000 in loans would have their debts canceled if they've been making payments for 12 years. It doesn't matter what repayment plan or plans you previously had, so long as you were actively repaying your loans and are enrolled in the SAVE plan. In the future, the Department of Education will continue to identify and forgive the loans of eligible borrowers on an ongoing basis.
However, on March 28, 2024, eleven states filed a federal lawsuit arguing that President Biden overstepped his authority in creating the SAVE Plan.
These days, it’s common to be facing overwhelming student loan debt. According to chamberofcommerce.org, the states with the highest average student debt include the District of Columbia, Maryland, Georgia, Virginia, and Florida.
If you’re eligible, you can get rid of your federal student loans through a discharge, cancellation, or forgiveness program. To qualify for a particular program, you must meet specific criteria, take certain steps, and meet some conditions.
Here’s a summary of each program, with more details below.
For-profit schools are well known for using glowing descriptions of future careers and high salaries to convince potential students to take out loans to attend, only to have the schools close before the students can finish the programs. If this sounds like something that happened to you, you might be able to discharge your loans.
You can discharge a Federal Family Education Loan (FFEL), a Direct Loan, or a Perkins Loan if you were unable to complete a program because a school closed:
You aren’t eligible for this kind of discharge in the following circumstances, even if the school closed.
If the school didn’t make sure you were qualified to attend the program—or you fall into any of the other categories described below—you might be able to discharge your federal student loans.
Typically, FFELs and Direct Loans can be discharged in the following situations:
The school falsely certified your ability to benefit from its training, and you didn’t meet the applicable admission requirements.
When you enrolled, you couldn't meet the licensing requirements for employment in the field for which you were to receive training because of a physical or mental condition, age, criminal record, or another reason.
For example, suppose you had a felony record and enrolled in a security guard course, but your state doesn’t permit prior felons to work as security guards. You would likely be eligible for a discharge in this situation.
The school forged your signature on the loan papers, or the school endorsed your loan check or signed your authorization for an electronic funds transfer without your knowledge. But you're not eligible if you received the loan proceeds or they were applied to charges you owed to the school.
You can get a discharge if you were a victim of the crime of identity theft, and someone unlawfully took out student loans in your name.
You can generally discharge all or a portion of FFELs and Direct Loans if you never attended the school or withdrew from the school, but the school failed to refund the loan money. Also, some states have funds to reimburse students who didn’t get refunds due to them.
You might qualify for loan forgiveness based on a "borrower defense to repayment" if you can prove that the school defrauded you.
On March 18, 2021, the U.S. Department of Education announced it would rescind former Education Secretary Betsy DeVos’ formula for calculating partial loan relief and adopt a “streamlined approach” for granting total relief for approved borrower defense claims. Borrowers receiving loan relief under a borrower defense to repayment claim can expect 100% discharge of their related federal student loans, reimbursement of any amounts paid on the loans (when allowed under the law), and reinstatement of eligibility for federal student aid. You can also ask the credit reporting bureaus to remove any related negative credit reporting.
To learn more about making a borrower defense to repayment claim, visit the U.S. Department of Education Federal Student Aid website.
You can get a discharge of your federal student loans if you're disabled. To qualify for this kind of discharge, you must show the U.S. Department of Education that you’re totally and permanently disabled. But the U.S. Department of Education will discharge eligible disabled veterans’ debts automatically unless they opt-out.
Also, on August 19, 2021, the Department of Education announced that many totally and permanently disabled student loan borrowers will get automatic discharges of their federal student loans unless they opt out of the process. Borrowers identified through an existing data match with the Social Security Administration (SSA) will get automatic total and permanent disability discharges, beginning with the September 2021 quarterly match with SSA. This policy change removes the requirement that these borrowers fill out an application before receiving student loan relief.
You might be eligible for Public Service Loan Forgiveness (PSLF) if you have Direct Loans (or consolidate other federal student loans into a Direct Loan) and you work in public service, like for a government agency or a nonprofit organization. To qualify for this kind of forgiveness, you must make 120 payments under an income-driven repayment plan while employed full-time by a qualifying employer or employers.
To ensure you’re on track to receive forgiveness under this program, you should complete and submit an Employment Certification form to the Department of Education annually, and whenever you change employers. Use this tool to assist you in completing the forms required for this program.
Also, the Biden administration announced permanent changes to the PSLF program to make it easier for borrowers to qualify.
To help more people qualify for loan forgiveness under this program, the Biden administration announced and introduced a new online PSLF appeal and reconsideration process for payment counts and employer qualification. Under this process, borrowers can find out whether their denied accounts were handled appropriately under federal law.
You can submit your reconsideration request through StudentAid.gov.
If you teach full-time for five complete and consecutive academic years in a low-income school or educational service agency (and you meet other qualifications), you might qualify for forgiveness of up to $17,500. Direct subsidized and unsubsidized loans, as well as subsidized and unsubsidized Federal Stafford Loans, qualify.
Those who do certain kinds of public service, like a teacher in a school serving students from low-income families, or are employed in specific occupations, like as a volunteer in the Peace Corps or in the military, might qualify for a Perkins Loan cancellation. Depending on the type of loan you have, and when that loan was taken out, you might be eligible to cancel part or all of the loan.
Also, under the following conditions, your Perkins Loan may be discharged:
Federal student loans can normally be discharged when a student or, in some cases, a parent dies.
Federal student loans, like Direct Loans, FFEL program loans, and Perkins Loans, can be discharged if the student dies.
With a parent PLUS loan, the loan may be discharged if the borrower (the parent) or the student dies. But if both parents signed for a PLUS loan, one’s death doesn’t wipe out the remaining debt.
If spouses have consolidated their federal student loans together, one spouse's death wipes out only that spouse's portion. In the past, spouses could consolidate their federal student loans. Now, though, married couples aren’t allowed to combine their student loans into a single, shared Direct Consolidation Loan.
Generally, borrowers have a tough time getting rid of student loan debt in a Chapter 7 or Chapter 13 bankruptcy, but if you can show that repaying your student loans would cause you an undue hardship, you can get a discharge. The test for determining undue hardship varies among courts. Also, many courts look at the undue hardship test as all or nothing; either your whole loan is discharged, or it isn't. Other courts have discharged a portion of a debtor’s student loan.
Regardless of the test used, most courts are hesitant to discharge student loans. But if you have a very low income or your loan is from a for-profit trade school, you might have a better chance.
In 2022, the Biden administration introduced a new student loan bankruptcy policy supposedly making it easier for borrowers to get a bankruptcy discharge of their student loan debts. You must fill out a form, in which you have to explain your financial difficulties. The Justice Department, along with the Department of Education, reviews the information provided, applies the factors that courts consider relevant to the undue-hardship inquiry, and then determine whether to recommend that the bankruptcy judge discharge your student loan debt.
To apply for federal student loan forgiveness, cancellation, or discharge, contact your loan servicer. You can also download the forms here. If you have a Federal Perkins Loan, contact the school that made the loan or contact the loan servicer the school has designated. Again, discharges for totally and permanently disabled veterans are automatic unless the veteran opts out.
Your servicer can give you information about different options. But be aware that your servicer might not tell you about all the available forgiveness programs. For this reason, it pays to learn about your options before you call. Go to the Federal Student Aid website to get extensive information about each type of available program.
If you’re planning on getting loan forgiveness, you need to make sure your loans qualify. You must have federal—not private—student loans. Also, for certain loan forgiveness programs, you must have specific kinds of federal student loans. For example, if you want to qualify for public service loan forgiveness, you must have Direct Loans.
Some programs, such as public service loan forgiveness, require you to make payments under a qualifying repayment plan. And, for certain programs, only payments you make while employed for a qualifying employer will count toward loan forgiveness. So, you need to become very familiar with program requirements and make sure you strictly adhere to them. And, keep an eye out for changes in loan forgiveness programs because eligibility criteria and requirements could change.
Federal laws usually treat canceled student loan debt as a taxable event for the borrower, subject to a couple of exceptions, like Public Service Loan Forgiveness and disability discharges (until January 1, 2026). In most cases, student loan forgiveness, such as under an income-driven repayment plan, can result in a significant tax liability. Depending on your situation and how much debt was canceled, the taxable income could add hundreds or thousands of dollars to your tax bill.
However, the American Rescue Plan Act of 2021, which President Joe Biden signed into law on March 11, 2021, made student debt cancellation tax-free at the federal level until January 1, 2026. (See § 9675.) So, from 2021 through 2025, forgiven student loans won't be included as part of your gross income for federal tax purposes.
Most states exclude debt forgiveness from state income tax. But not all.
If you have questions about your loans, forgiveness programs, and how to apply for them, contact your servicer. You can also get detailed information about federal student loans, forgiveness programs, and other ways to manage your student loan debt on the U.S. Department of Education’s Federal Student Aid website. To learn about different options if you’re struggling to pay your student loans, see How to Get Out of Student Loan Debt.
If you need assistance in dealing with your servicer or need help understanding the different repayment, deferment, forbearance, and forgiveness options for federal student loans, consider consulting with a student loan attorney or debt negotiation attorney who deals with student loans.
]]>So, student loan interest resumed accruing September 1, 2023, and payments became due beginning October 2023. (In exchange for a raised debt ceiling, the Biden administration agreed not to extend the ongoing payment pause longer.)
After the U.S. Supreme Court struck down the debt cancellation plan, the administration introduced a 12-month "on-ramp" repayment program for federal student loans. Beginning October 1, 2023, and for a year after that, the Education Department won't report borrowers who miss payments to the credit bureaus, consider them delinquent, place them in default, or refer them to debt collection agencies. But interest will accrue.
In addition, the Biden Administration announced that, in February 2024, it would start canceling federal student loan debts for anyone who initially borrowed $12,000 or less and has been in repayment for at least 10 years if they first enroll in the SAVE income-based repayment plan. The timeframe for loan forgiveness increases by one year with each additional $1,000 of debt. So, for example, a student who took out $14,000 in loans would have their debts canceled if they've been making payments for 12 years. It doesn't matter what repayment plan or plans you previously had, so long as you were actively repaying your loans and are enrolled in the SAVE plan. In the future, the Department of Education will continue to identify and forgive the loans of eligible borrowers on an ongoing basis.
However, on March 28, 2024, eleven Republican-led states filed a federal lawsuit arguing that President Biden overstepped his authority in creating the SAVE Plan.
On August 24, 2022, the Biden Administration announced that $10,000 in federal student loan debt, or $20,000 if you went to college on Pell Grants, would be canceled for those earning less than $125,000 per year (or households earning less than $250,000) in 2020 or 2021.
The administration also said the U.S. Department of Education will extend the suspension of most federal student loan payments through December 31, 2022. Payments were set to resume on September 1 after being on hold since the beginning of the COVID-19 pandemic. This is the seventh time the payment pause has been extended in the last two years.
And if you have undergraduate loans, you can cap your payments at 5% of your monthly income. The current income-driven repayment plans generally limit payments to 10% of a borrower’s discretionary income.
If you have federal student loans held by the Department of Education issued on or before June 30, 2022, your outstanding balance can be reduced or fully canceled, depending on how much you owe. Again, $10,000 (or $20,000 if you went to college on Pell Grants) will be canceled if you earned less than $125,000 per year (or your household earned less than $250,000) in 2020 or 2021.
Borrowers with FFEL or Perkins loans not held by the Education Department can qualify for forgiveness only if they applied for consolidation before September 29, 2022.
The Department of Education has said 8 million borrowers might qualify automatically because relevant income data is already available to the Department. But others will have to apply.
Borrowers must complete the application before November 15 to get relief before the payment pause ends on December 31.
Though, the Education Department will continue to process applications as they are received, even after the pause expires on December 31, 2022. You'll have until December 31, 2023 to apply for relief.
Most people who qualified for the suspension of student loan payments, which started in 2020, didn't make payments during the pause. But if you made payments during the suspension, you can get a refund on the payments you made since March 2020.
You'll automatically get a refund of payments you made during the payment pause if:
Here's an example of how the automatic refund process will work, according to the Department of Education. Say you qualify for $10,000 in debt cancellation. Your balance was $10,500 before March 13, 2020, and you paid $1,000 since then on your loans. Because your balance is $9,500 at the time of cancellation, you'll get a $500 refund.
If you're not eligible for an automatic refund, contact your loan servicer by December 31, 2023, to ask for your money back. If you get a refund, that amount will be added to your balance (or your account will be reopened if you've paid off the debt). Because it could take months for the cancellation to happen, you could have to make regular payments after the suspension ends on December 31, 2002, until the forgiveness comes through.
And if you consolidated your loan after March 13, 2020, you can't get a refund for any voluntary payments made before the consolidation.
The American Rescue Plan Act exempts student debt cancellation from federal taxation until January 1, 2026. So, you won't owe federal taxes on forgiven amounts. But some states could tax you.
The suspension applies to Federal Direct Loans and Federal Family Education Loans (FFELs), but only FFELs that the U.S. Department of Education owns, not nondefaulted FFELs held by other entities. Borrowers with Perkins Loans held by entities other than the Department of Education and nondefaulted HEAL loans also aren't covered.
Private student loan borrowers don't get relief either. If you have private student loans, call your lender to see if any alternatives are available to help you out.
Eligible borrowers will have their payments automatically suspended without penalty or accrual of interest. Collection actions, wage garnishments, and Treasury offsets for defaulted federal student loans are also paused until 2023.
The Department of Education, under President Biden's direction, has canceled billions of dollars in federal student loan debt.
In addition, the American Rescue Plan Act exempts student debt forgiveness from federal taxation until January 1, 2026, and covers Direct Loans, FFELs, and private student loans. (Forgiven amounts might be taxable in some states.)
To get more information about the payment suspension and other available support for student loan borrowers, go to StudentAid.gov.
]]>In addition, the Biden Administration announced that, in February 2024, it would start canceling federal student loan debts for anyone who initially borrowed $12,000 or less and has been in repayment for at least 10 years if they first enroll in the SAVE income-based repayment plan. The timeframe for loan forgiveness increases by one year with each additional $1,000 of debt. So, for example, a student who took out $14,000 in loans would have their debts canceled if they've been making payments for 12 years. It doesn't matter what repayment plan or plans you previously had, so long as you were actively repaying your loans and are enrolled in the SAVE plan. In the future, the Department of Education will continue to identify and forgive the loans of eligible borrowers on an ongoing basis.
However, on March 28, 2024, eleven Republican-led states filed a federal lawsuit arguing that President Biden overstepped his authority in creating the SAVE Plan.
Under some circumstances, you can get rid of your student loans altogether through loan cancellation. To cancel your loans, you must meet one of the conditions that allow you to do so.
In this article, we discuss three of those methods—cancellation due to school closure, false certification, and unpaid refund.
If you qualify for cancellation of your student loans, you might be able to:
In addition, certain types of discharges treat the loan as if you never owed it, like closed school and false certification discharges, and wipe out all negative references in your credit reports.
If only a portion of your debt is wiped out due to the school’s failure to pay a required refund on your loan, your credit reports must state that a portion of the loan was discharged.
The below ways to cancel your loan—school closure, false certification, and unpaid refunds—are most likely to apply to students who attended private, for-profit schools. These schools typically offer vocational courses, degrees, or online courses.
Many former students were lulled into taking out student loans to attend a school with glowing descriptions of future careers and high salaries, only to have the school deteriorate or close before they could finish the program. You can cancel an FFEL, Direct, or Perkins loan if you received any of the loan proceeds after January 1, 1986, as well as the portion of a consolidation loan used to pay off any of these loans if you were unable to complete the program because the school closed:
You aren't eligible for cancellation of your loans if your school closes and any of the following applies to you:
If the school did not make sure that you were qualified to attend the program, you might be able to cancel your loans based on “false certification.” This program applies to FFEL or Direct loans if you received any of the loan proceeds after January 1, 1986, as well as the portion of a consolidation loan used to pay off one of these loans. (If you had a Perkins loan, you might have other grounds to have the loan canceled, but will need to contact an attorney familiar with the intricacies of student loan law for help.)
Typically, the grounds for false certification are any of the following:
You might be eligible for a discharge of your Direct Loan or FFEL Program loan if the school failed to pay you a refund that it owed you because you never attended the school or you withdrew from the school and were owed a refund for the time left in the program. In addition, some states have funds to reimburse students who didn’t get refunds due to them.
To learn more about the different types of student loan discharges, go to the U.S. Department of Education website. To learn the process for canceling a student loan, contact your loan servicer.
]]>If you live in a state that's not a party to such an agreement or the agreement has expired, most private student loan lenders offer payment help to borrowers who're facing a financial hardship because of COVID.
The payment pause for federal student loans applied to Federal Direct Loans and Federal Family Education Loans (FFELs), but only FFELs that the U.S. Department of Education owns, not nondefaulted FFELs that other entities hold. (Borrowers with defaulted FFELs, including FFELs held by guaranty agencies, got a 0% interest rate and a pause on collection actions.)
Borrowers with Perkins Loans held by entities other than the Department of Education and nondefaulted HEAL loans also weren't covered. Private student loan borrowers didn't get relief either.
The federal student loan payment pause that started at the beginning of the COVID-19 pandemic has ended. Interest started accruing on September 1, 2023, and payments were due in October 2023.
But after the U.S. Supreme Court struck down President Biden's debt cancellation plan for federal student loans (not private ones), the administration introduced a 12-month "on-ramp" repayment program. Beginning October 1, 2023, and for a year after that, the Education Department won't report borrowers who miss payments to the credit bureaus, consider them delinquent, place them in default, or refer them to debt collection agencies. But interest will accrue.
In addition, the Biden Administration announced that, in February 2024, it would start canceling federal student loan debts for anyone who initially borrowed $12,000 or less and has been in repayment for at least 10 years if they first enroll in the SAVE income-based repayment plan. The timeframe for loan forgiveness increases by one year with each additional $1,000 of debt. So, for example, a student who took out $14,000 in loans would have their debts canceled if they've been making payments for 12 years. It doesn't matter what repayment plan or plans you previously had, so long as you were actively repaying your loans and are enrolled in the SAVE plan. In the future, the Department of Education will continue to identify and forgive the loans of eligible borrowers on an ongoing basis.
However, on March 28, 2024, eleven Republican-led states filed a federal lawsuit arguing that President Biden overstepped his authority in creating the SAVE Plan.
Because the suspension under federal law didn't cover private student loans or nondefaulted commercially-held federal loans, some states filled this gap. California, Colorado, Connecticut, Illinois, Massachusetts, New Jersey, New York, Vermont, Virginia, and Washington, as well as the District of Columbia, all reached agreements with specific student loan servicers to offer forbearances of at least 90 days for private student loans and commercially-held federal loans. As part of the agreements, servicers also consented to waive late fees, temporarily stop negative credit reporting, and pause debt-collection lawsuits.
Other states temporarily suspended wage garnishment actions or suspended all collection actions on debts, including student loans.
But, again, most of these agreements have since ended.
If you live in a state or have a servicer not part of a student loan agreement (or the deal has expired), private student loan lenders typically offer assistance options, like short-term forbearances, fee waivers, lower interest rates, and interest-only payments. Contact your servicer to find out what alternatives the lender offers. Before agreeing to a particular relief option, verify the terms, such as whether you’ll have to pay fees and how long the program lasts. Ensure you get this information in writing before enrolling in the program. Then, get confirmation that you’re enrolled.
Also, be aware that if you have good credit, you might be able to refinance your loans with a new lender. If you can lower your current interest rate, you might be able to save a substantial amount of money. Your new lender might also offer more alternatives than your current lender if you eventually have trouble making the payments.
If you have a complaint about a student loan servicer, contact your state Attorney General’s office and the Consumer Financial Protection Bureau. Also, your state could have a consumer protection office, department of banking, or student loan advocate (typically called an “ombudsman”) who might be able to help you.
]]>In addition, the Biden Administration announced that, in February 2024, it would start canceling federal student loan debts for anyone who initially borrowed $12,000 or less and has been in repayment for at least 10 years if they first enroll in the SAVE income-based repayment plan. The timeframe for loan forgiveness increases by one year with each additional $1,000 of debt. So, for example, a student who took out $14,000 in loans would have their debts canceled if they've been making payments for 12 years. It doesn't matter what repayment plan or plans you previously had, so long as you were actively repaying your loans and are enrolled in the SAVE plan. In the future, the Department of Education will continue to identify and forgive the loans of eligible borrowers on an ongoing basis.
However, on March 28, 2024, eleven states filed a federal lawsuit arguing that President Biden overstepped his authority in creating the SAVE Plan.
If money is tight and your federal student loan payments are higher than you can afford, you might be able to get assistance through a federal program called "deferment" or "forbearance."
Deferment and forbearance are available for federal student loans but are usually unavailable for private student loans. If you're unsure what kind of loans you have, go to the National Student Loan Data System to track down your loan type.
But deferment and forbearance aren't available if you're in default on your federal student loans.
Again, in a deferment, loan payments are halted, and interest doesn't accrue on subsidized loans. Subsidized loans include Federal Perkins Loans, Direct Subsidized Loans, Subsidized Federal Stafford Loans, the subsidized portion of Direct Consolidation Loans, and the subsidized portion of FFEL Consolidation Loans.
Deferment is available under several different circumstances, including when:
You must apply to your loan servicer to receive a deferment. Your servicer is the company that communicates with you about loan payments.
A forbearance suspends or reduces your loan payments, but interest continues to accrue during the forbearance period. If you don’t pay the interest during that time, it may be “capitalized,” which means the interest is added to your principal balance.
Even though the terms for forbearance aren't as favorable as deferment, forbearance is definitely a better option than default if you're in financial distress.
Your loan servicer determines if you're eligible for forbearance.
When the servicer may grant forbearance. In some cases, the loan servicer has the discretion to grant forbearance. A servicer may grant what's called a "general forbearance" if you're experiencing:
General forbearances are available for Direct Loans, FFEL Program loans, and Perkins Loans, but for no more than 12 months at a time. While the program doesn't set a cumulative limit on general forbearance for Direct Loans and FFEL Program loans, your loan servicer might limit the maximum amount of time you can get a general forbearance.
When the servicer must grant forbearance. In other cases, a servicer must offer a "mandatory forbearance." Forbearance is mandatory if:
Ask your loan servicer for specific details on qualifying for mandatory forbearance.
If you're experiencing financial hardship, you should also consider the different repayment plans and forgiveness options that the Department of Education offers for federal student loans.
]]>What you want to know is this—can you file bankruptcy on student loans? The answer is yes, it’s possible to discharge student loan debt in bankruptcy, but it’s never been likely for most people. The process is complicated and costly, and bankruptcy judges only grant student loan debt relief in extreme situations, leaving a small percentage of people to benefit.
However, changes to the student loan discharge process have improved the odds that those who qualify for student loan debt relief will receive it. In this article, you'll learn what's required to discharge student loan debt and alternatives if your student loans are ineligible.
A bankruptcy filing allows people overwhelmed by debt to get a fresh start. The bankruptcy “discharge” erases credit card balances, medical debt, phone and utility bills, unpaid rent, personal loans, and more.
But not all debts can be discharged. For instance, support obligations and many tax debts are examples of “nondischargeable debt.” Student loans are also nondischargeable in most instances, and you remain responsible for the balance after bankruptcy.
However, you can erase student loan debts if you successfully prove that paying them back would be an “undue burden.” Below, we explain the process and what is required to meet the undue burden standard.
Meeting the undue burden standard has always been challenging. And although many have hoped Congress would ease student loan discharge laws, they remain as strict as ever.
However, some improvements have been made. The Department of Justice now oversees the student loan discharge proceedings to help maintain a transparent process and ensure those who qualify receive the appropriate relief.
Although challenging, getting rid of student loan debt is still possible. However, you’ll likely want to exhaust all options before turning to bankruptcy. Below, we cover bankruptcy and nonbankruptcy alternatives, with the simplest and most effective options listed first.
The most common federal programs provide repayment options to reduce monthly payments. You’re likely familiar with these, but if not, you’ll find details in How to Get Out of Student Loan Debt.
The most helpful federal program offers student loan debt relief to people with total and permanent disabilities. People apply directly with Federal Student Aid, using a more straightforward and less expensive process than bankruptcy that can eliminate the following loan types:
You’ll qualify after providing disability documentation from the U.S. Department of Veterans Affairs (VA), the Social Security Administration (SSA), or an authorized medical professional. You’ll find more about applying for total and permanent disability student loan forgiveness on the Federal Student Aid website.
Learn about student loan deferments for cancer patients.
Before filing for bankruptcy, you’ll want to know if you can establish the undue hardship factors necessary to erase your student loans. You must prove each of the following factors.
Present Ability to Pay. If you have enough money to pay your student loans, you won't clear this factor. So how do you pass it? You must show your expenses meet or exceed your income. The allowed calculation figures are on the student loan attestation form or you can ask your bankruptcy lawyer for more information.
Future Ability to Pay. Will your financial situation improve enough to allow you to repay your loan in the future? If so, you won’t meet this hurdle. Factors proving a future inability to pay include not holding a degree, being of retirement age, having a disability, chronic injury, or protracted unemployment history, and having an extended repayment status. If none of the factors apply in your case, other facts will be considered to determine your future ability to pay.
Good Faith Efforts. The good faith element assesses whether you’ve reasonably attempted to earn money and pay the student loan. Contacting the lender about payment plans is a good-faith factor. Previous nonpayment won’t automatically disqualify you, nor will failing to enroll in an income-dependent plan when you can provide a valid explanation.
The Justice Department analyzes these factors in a litigation report provided to the bankruptcy judge assigned to the student loan discharge lawsuit. You're entitled to a copy, so you or your lawyer should request the report. Your state might have a slightly modified standard leading to the same result; however, traditionally, the standards have varied little between states. Your lawyer will advise you of any significant differences.
If you can satisfy the undue hardship factors, filing for bankruptcy might offer student loan debt relief. To start the process, you must file two separate matters—the bankruptcy chapter that best meets your needs and a separate bankruptcy trial or “adversary proceeding” requesting the student loan discharge.
If your income is low enough for a student loan discharge, you’ll likely qualify for Chapter 7 bankruptcy (take the Chapter 7 means test to find out). Most people prefer Chapter 7 because it’s usually over in four to six months, and filers don’t repay creditors.
But Chapter 7 doesn’t solve all financial problems. Consider filing for Chapter 13 if you’re facing one of the following common situations (others exist):
In Chapter 13, filers repay creditors a portion of what they owe through a three- to five-year Chapter 13 plan. Learn whether it's better to file for Chapter 7 or Chapter 13.
You’ll start the bankruptcy process by filing the mandatory bankruptcy forms. You’ll file a separate complaint to begin the student loan adversary proceeding, and each matter will receive a different case number.
When you file the adversary proceeding, you’ll also provide financial and student loan information on a student loan attestation form. The Justice Department and the Department of Education apply the undue burden factors described above and prepare a student loan discharge litigation report for the bankruptcy judge. You're entitled to a copy of the report, so be sure to request it.
After your loan provider gets served with a copy of the complaint, the discovery phase begins, and each side can request information from the other. At trial before a bankruptcy judge, you put on evidence proving your case, and the loan provider presents a defense.
The bankruptcy judge will consider the evidence and the Justice Department’s opinion when deciding the case outcome.
If you don’t qualify for a student loan bankruptcy discharge, you might have another option. It is possible to use bankruptcy to manage your student loan debt instead of eliminating it. For instance, you could file for Chapter 13 and receive temporary relief from high payments because you’ll likely be able to pay a reduced amount during your Chapter 13 plan.
However, you'll be on the hook for whatever amount is left after your repayment period ends. Another significant downside is that the time spent in Chapter 13 could erase all credit for the time paid into an income-dependent plan.
Did you know Nolo has made the law accessible for over fifty years? It’s true, and we want to ensure you find what you need. Below, you’ll find more articles explaining how bankruptcy works. Also, don’t forget that our bankruptcy homepage is the best place to start if you have other questions!
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We wholeheartedly encourage research and learning, but online articles can't address all bankruptcy issues or the facts of your case. The best way to protect your assets in bankruptcy is by hiring a local bankruptcy lawyer.
Updated March 26, 2024
]]>The Department said it would discharge all remaining federal student loans for borrowers who enrolled in any location of Westwood College, including enrollment in an online program, between January 1, 2002 through November 17, 2015. The school stopped enrolling new students on that date and shut its doors in 2016.
Around 79,000 borrowers, whether or not they’ve applied for a borrower defense discharge, get relief. You don’t have to take any additional steps to get a discharge.
The Education Department found that Westwood misled prospective students by misrepresenting that its credentials would help students' career options and earning potential. Specifically, Westwood promised that potential students would be employed in their field within six months after graduation and that a Westwood degree would make them "employable for the rest of [their lives]."
The Education Department also found that Westwood made widespread, substantial misrepresentations to students that its criminal justice program would allow them to get jobs as police officers in Illinois. But Westwood didn’t have the accreditation necessary to meet state employment requirements.
The Department of Education under President Biden has canceled billions of dollars in federal student loan debt.
In addition, the American Rescue Plan Act exempts student debt forgiveness from federal taxation until January 1, 2026, and covers Direct Loans, FFELs, and private student loans. (Forgiven amounts might be taxable in some states.)
]]>Update: In October 2022, the government said that it would adjust borrowers' loans (see "One-Time Income-Driven Repayment (IDR) Account Adjustments" below) by July 2023. As of early 2023, the U.S. Department of Education says borrowers can expect the update sometime in 2024.
On October 25, 2022, the Biden-Harris Administration announced a plan to implement permanent changes to the Public Service Loan Forgiveness (PSLF) program after the Limited PSLF Waiver ends on October 31, 2022. These changes will make it easier for eligible borrowers to cancel their student debt.
Borrowers will get many of the same benefits already available under the Limited PSLF Waiver.
The Public Service Loan Forgiveness (PSLF) program was developed to provide debt relief for public servants, like firefighters, nurses, and teachers, by canceling their federal student loans after ten years of public service. But in the past, around 98% of people who applied for PSLF were rejected.
Most applications were denied due to borrowers failing to meet program requirements for reasons like not having eligible student loans, failing to make 120 qualifying payments, or not working for a qualified employer. Other applications were denied because of missing or incomplete information on an employment certification form.
So, to help more borrowers qualify for loan forgiveness, the U.S. Department of Education is making permanent changes to the PSLF program.
Specifically, the U.S. Department of Education announced the following lasting improvements to the PSLF program under new regulations.
The Education Department is expanding what types of payments qualify for the PSLF program. Borrowers can get credit toward PSLF on payments made late, in installments, or with a lump sum.
Previously, a payment wouldn’t count for forgiveness if it was more than 15 days late or wasn’t for the full amount, even if only a few pennies short.
The new regulations expand the situations in which it's acceptable for a borrower to defer or pause (forbear) their payments and still qualify for PSLF, including:
The new program counts these periods of deferment or forbearance toward PSLF.
The department clarified that full-time employment is now defined as 30 hours per week with more specific guidelines for adjunct faculty and lecturers.
Prior rules required borrowers to either work 30 hours per week at multiple jobs or whatever their employer defined as full-time, which led to confusing and varying standards. Under the new regulations, working 30 hours a week will be considered full-time.
Only Direct Loans qualify for PSLF.
The regulations will be published soon and go into effect on July 1, 2023.
The Education Department will also retroactively credit borrowers toward 20-year or 25-year student loan forgiveness programs under Income-Driven Repayment (IDR) plans.
These one-time improvements will adjust a borrower’s account by awarding credit for the following:
These periods also result in credit toward PSLF if the borrower has certified qualifying employment overlapping the same periods.
To receive this credit toward IDR, you must have Direct Loans or FFEL loans that the Education Department manages. Borrowers with other types of federal loans must consolidate into the Direct Loan program to get the credit. You must consolidate by July 2023. Because it might take a few months for the consolidation process, you should apply for consolidation no later than May 1, 2023.
Starting November 2022, borrowers with 20 years (that’s 240 monthly payments) or 25 years (300 monthly payments) of payments through these changes will start receiving loan discharges. Borrowers who applied for PSLF before October 31, 2022, and reach 120 payments because of the deferment and forbearance changes will also get loan discharges.
Borrowers who get additional credit for IDR or PSLF through the one-time account adjustment but don’t reach the required monthly payments for forgiveness under the programs will have their accounts adjusted in July 2023.
For details, read the U.S. Department of Education’s Fact Sheet: Charting the Path Forward for Public Service Loan Forgiveness.
]]>This law allows individuals who have cancer to get deferments on their federal student loans.
If you qualify, a "deferment" allows you to stop making payments on a federal student loan for a set period of time. During the deferment, interest does not accrue on the debt.
Deferments of federal student loans have historically been available to people who are, for example, unemployed, returning to school, deployed in the military, or serving with the Peace Corps.
Under federal law, a borrowers may receive a deferment and temporarily stop making payments on a federal student loan while:
This law is applicable to loans made on or after September 28, 2018 or in repayment on September 28, 2018. (20 U.S.C. § 1087e(f)(3)).
To get a deferment of your federal student loans, call your loan servicer. Continue to make the payments on your loan until the deferment is in place.
If you're undergoing cancer treatment, or your treatment ended within the last six months, and your servicer refuses give you a deferment, consider talking to a consumer protection lawyer or a debt settlement lawyer with experience in student loan matters. A lawyer can help you enforce your rights.
You can also submit a complaint to the Consumer Financial Protection Bureau (CFPB) online or by calling 855-411-CFPB (2372) if you have a problem with your student loan servicer. The CFPB will then work to get you a response to your complaint.
]]>I have severe back problems and was recently granted Social Security disability benefits. I heard that I could also get rid of my student loan debt. Is that true? I have both federal and private student loans.
While most federal student loans are eligible to be discharged on account of disability, your private loans might not.
Under specific circumstances, you can get a discharge of your federal student loans. A loan “discharge” is basically the same as loan forgiveness or loan cancellation; after your federal student loans are discharged, you’re no longer on the hook for paying them.
The federal student loan program offers a "total and permanent disability" (TPD) discharge for disabled people who meet specific qualifications. In most cases, to qualify for a discharge, you can't have had the injury or illness when you signed up for the loan. If you did have the disability at the time you got the loan, you might be able to cancel your debt if you can show a substantial deterioration of your condition.
To qualify for a TPD discharge, you must demonstrate to the U.S. Department of Education in one of the following ways that you’re totally and permanently disabled.
By showing you receive Social Security Disability (SSDI) or Supplemental Security Income (SSI). If you’re getting Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI) benefits, you can apply and provide documentation of your Social Security Administration (SSA) notice of award for SSDI, SSI benefits, or a Benefits Planning Query (BPQY form 2459) stating that your next scheduled disability review will be within five to seven years from the date of your most recent SSA disability determination.
If the Department of Education gets information from the Social Security Administration, which shows you’re receiving SSDI or SSI benefits and your next scheduled disability review will be within five to seven years from the date of your most recent SSA disability determination, it might contact you and explain how you may apply for a TPD discharge. But you won’t have to submit supporting documentation.
By providing a certification from your treating physician. Your physician, a doctor of medicine (M.D.) or osteopathy (D.O.) that’s licensed in the U.S., must certify that you’re unable to engage in any substantial gainful activity because of a medically-determinable physical or mental problem that:
Loan forgiveness Is automatic for disabled veterans. On August 21, 2019, former President Trump signed an executive order directing the U.S. Department of Education to forgive eligible disabled veterans’ debts automatically unless they opt-out.
Federal Direct Loan Program, Perkins Loans, and the Federal Family Education Loan (FFEL) Program are eligible for a TPD discharge. Also, Teacher Education Assistance for College and Higher Education (TEACH) grants, which require you to complete a service obligation, can be discharged.
The IRS generally treats the amount of a discharged loan as income to you, meaning you'll have to pay taxes on it unless you qualify for an exception or exclusion. But under the Tax Cuts and Jobs Act, if a student loan borrower becomes permanently disabled, the forgiven amount is excluded from taxable income for federal purposes. This exclusion is applicable after December 31, 2017, but will not apply to discharges after December 31, 2025, if Congress doesn’t renew it. Also, the American Rescue Plan Act exempts student debt forgiveness from federal taxation until January 1, 2026.
Some states might consider forgiven student loan debt as taxable income, even if the federal government doesn't.
If you notify the Department that you plan on applying for a disability discharge, the Department will tell your loan holders to suspend collection activity for up to 120 days. So, you won’t have to make payments for up to 120 days, which gives you time to complete and submit the discharge application. After you submit your application, the Department will contact your loan holders and tell them to suspend collection activity on your loans for, again, up to 120 days.
The suspensions don’t apply to wage garnishments or Treasury offsets, however. But if the Department approves your request for a discharge, the wage garnishments or tax offsets will be discontinued.
What happens after you receive a discharge generally depends on how you show that you’re totally and permanently disabled.
If the Department approves your request because you submitted (or it received) SSA documentation or a physician certification, you’ll be discharged from making further payments after the date the Department originally received the documentation used to approve your request. But you’ll be subject to a three-year post-discharge monitoring period starting on the date the discharge is approved. During this time, you’ll have to meet certain requirements, like your annual employment earnings can't exceed the Poverty Guideline amount for a family of two in your state, regardless of your actual family size. If you fail to meet the requirements, you’ll have to repay your discharged loans.
If you receive a discharge because you're a totally and permanently disabled veteran, you’ll be discharged from making further payments beginning from the date of your disability.
You may apply directly to the Department through an online system. You'll submit one application for all of your federal student loans. Nelnet, a loan servicer, assists the U.S. Department of Education in administering the TPD discharge process.
To find additional information about a TPD discharge, go to the U.S. Department of Education’s Federal Student Aid website or https://www.disabilitydischarge.com.
]]>Corinthian Colleges, Inc. was a company that ran for-profit schools (Everest, Heald, and Wyotech), which became well-known for using deceptive advertisements and aggressive marketing techniques that misrepresented job placement rates. Corinthian typically targeted low-income, vulnerable people who had to take out large student loans to attend school.
After graduation, though, many students found that they were unable to repay their federal student loans and private loans when their Corinthian education failed to lead to good-paying jobs. As a result, former Corinthian students often ended up defaulting on their loans. After the federal government and other authorities investigated Corinthian’s shady practices, the company initially sold most of its schools, and then, on April 27, 2015, Corinthian shuttered its remaining locations.
If you attended a Corinthian College—Everest Institute, Everest College, Everest University, Heald College, or Wyotech—you might qualify for a discharge of your federal student loans. In addition, California residents might qualify for a state program that reimburses students for amounts spent on tuition to attend a Corinthian College.
On December 13, 2018, the U.S. Department of Education announced it would forgive $150 million in federal student loans for students who attended a closed school. Under amended federal regulations (81 FR 75926), the William D. Ford Federal Direct Loan (Direct Loan Program), Federal Family Education Loan (FFEL Program), and Federal Perkins Loan (Perkins Loan Program) programs now provide for the automatic discharge of loans if, among other things, borrowers could not complete their program of study because the school closed.
Federal law, 34 C.F.R. § 685.214(c) (Direct Loan Program), 34 C.F.R. § 682.402(d)(8)(ii) (FFEL Program), and 34 C.F.R. § 674.33(g)(ii) (Perkins Loan Program), provide for an automatic discharge of some or all of the Direct Loan, FFEL, or Perkins Loan program loans an eligible borrower—or, if applicable, the dependent child on whose behalf a parent took out a PLUS loan—obtained to attend a school that closed on or after November 1, 2013.
Specifically, if you meet the eligibility requirements for a closed school discharge of your loans obtained to attend a school that closed on or after November 1, 2013, but before July 1, 2020, and you have not enrolled at another school that participates in the federal student aid programs within three years of the date your school closed, you will receive an automatic closed school discharge.
You're generally eligible for a closed school discharge if:
If you don't want to wait three years for the automatic discharge, you may apply earlier—as soon as the Department of Education confirms the school's closure date. Also, if you don't get an automatic closed school discharge based on your attendance at a school that closed three or more years ago, but you otherwise meet eligibility requirements for a closed school discharge, you should submit a closed school discharge application. Contact your loan servicer for more information on how to do this.
For more information on closed school discharges, go to the U.S. Department of Education's website on closed school discharges to get more information.
If you don't qualify for a closed school discharge, you might qualify for loan forgiveness based on a borrower defense to repayment claim, if you can prove that the school defrauded you.
California residents enrolled at Corinthian Colleges campuses in California and residents who were enrolled in an out-of-state Corinthian Colleges distance education program as of June 20, 2014, or who withdrew within 120 days of this date, might qualify for reimbursement of private student loans and other money spent on tuition under the state’s Student Tuition Recovery Fund (STRF).
To learn more about the Student Tuition Recovery Fund in California, go to the California Bureau for Private Postsecondary Education website. You can also email bppe.strfclosedschool@dca.ca.gov or call 888-370-7589.
If you're a resident of a state other than California—or you don't qualify for relief under the STRF—and want to find out if you have any options for discharging private loans you took out to attend a Corinthian school, contact your private loan lender.
]]>To eliminate the burdensome application procedures, on August 21, 2019, former President Trump signed an executive order streamlining the process for getting a discharge. Now, totally and permanently disabled veterans can automatically get a discharge of their federal student loans—unless they opt out of the process.
Nearly all federal student loans—including all FFEL loans, Perkins loans, and Direct loans—are eligible for a total and permanent disability (TPD) discharge. A TPD discharge also relieves a borrower from having to complete a TEACH Grant service obligation.
Under a new process announced on August 21, 2019, the Department of Education will identify veterans who’re eligible for a TPD discharge and give them 60 days to opt-out of the process. Those who don't decline will get a discharge of their federal student loans.
Before January 1, 2018, if a borrower received a disability discharge for a federal student loan, the forgiven amount was usually counted as taxable income under federal tax laws. Thanks to changes in the law, though, if you qualify for a disability discharge in the years 2018 to 2025, you won’t have to pay federal income tax on the discharged amount. Some states, however, might consider forgiven student loan debt as taxable income—even if the federal government does not. So, depending on your state’s laws, you might decide to turn down a discharge of your federal loans because of a potential tax liability. To get advice about whether you might have tax liability after getting a student loan discharge, talk to a tax lawyer or other tax professional.
You might also choose to pass on getting a discharge if you want to get student loans in the future because the process could be more difficult. If you have questions about how a discharge might affect your chances of receiving more student loans, check out the Federal Student Aid website. You might also consider talking to a debt settlement or consumer protection lawyer who has experience dealing with student loans.
If you're a veteran and you think you meet the eligibility requirements for a TPD discharge based on a disability determination from the VA, but didn't receive notice about a discharge, you can submit an application along with documentation from the VA showing that you have a service-connected disability (or disabilities) that is 100% disabling or that you're totally disabled based on an individual unemployability rating. The documentation you provide must include the effective date of the VA’s determination.
To find additional information about a TPD discharge, go to the U.S. Department of Education's Federal Student Aid website or https://www.disabilitydischarge.com.
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