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.
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.