Student Loan Relief: Canceling Your Loans

If you have federal student loans and you meet specific criteria, you might qualify for loan forgiveness.

By , Attorney · University of Denver Sturm College of Law

Legal Update: After the U.S. Supreme Court struck down President Biden's 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. However, on March 28, 2024, several states filed a federal lawsuit arguing that President Biden overstepped his authority in creating the SAVE Plan.

The Department of Education is pausing student loan payments for SAVE borrowers for July 2024 to recalculate payments according to the new formula that will lower them from 10% of a borrower's income to 5%. If you're a SAVE borrower and the Department of Education notified you about this adjustment, then you can skip your July payment.

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.

  • Closed-school discharge. You might qualify for a closed-school discharge if you couldn't complete your program because your school shut down.
  • False certification discharge. If your school falsely certified your eligibility to receive a loan and you meet other eligibility requirements, you can qualify for a discharge.
  • Unpaid refund discharge. You can generally discharge all or a portion of your loans if you never attended the school or withdrew from the school, but the school didn't refund the loan money.
  • Borrower defense to repayment. If your school misled you or engaged in other misconduct in violation of state laws that convinced you to enroll or remain enrolled—and you can prove it—you can qualify for a discharge of the federal student loans you took out to attend the school.
  • Total and permanent disability discharge. If you're totally and permanently disabled, you might qualify for a discharge.
  • Public service loan forgiveness. Under this program, the remaining balance on your eligible loans is forgiven after you make 120 qualifying monthly payments while working full-time for a qualifying employer.
  • Teacher loan forgiveness. If you work as a teacher, 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 to have up to $17,500 forgiven.
  • Perkins loan cancellation and discharge. You might be eligible to have all or a portion of your Federal Perkins Loan canceled based on your employment, like if you teach in a qualifying school, or you're in a volunteer service, like if you serve in the Peace Corps.
  • Death discharge. A student's death discharges any outstanding amount owed on federal student loans, including PLUS loans.
  • Bankruptcy discharge. Though this kind of discharge is uncommon, if you can prove that repaying your student loans would cause an undue hardship, you can have your student loans discharged by filing for bankruptcy.

Closed-School Discharge

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 were enrolled when your school closed
  • you were on an approved leave of absence when your school closed
  • your school closed within 120 days after you withdrew, if your loans were first disbursed before July 1, 2020, or
  • your school closed within 180 days after you withdrew, if your loans were first disbursed on or after July 1, 2020.

You aren't eligible for this kind of discharge in the following circumstances, even if the school closed.

  • Except in exceptional circumstances, you withdraw more than 120 or 180 days (depending on the circumstances) before the school closed.
  • You're finishing a comparable program at another school through a teach-out agreement, by transferring the academic credits or hours that you earned at the closed school to another school, or in some other similar way. (A "teach-out agreement" is an agreement between the closed school and other schools to ensure that students from the closed school can finish their programs.)
  • You finished all program coursework at the closed school, even if you haven't received a diploma or a certificate.

False Certification Discharge

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

The school falsely certified your ability to benefit from its training, and you didn't meet the applicable admission requirements.

Your Status Disqualifies You From Employment In the Field You're Studying

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.

Your Loan Is Based On Forgery

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're a Victim of Identity Theft

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.

Unpaid Refund Discharge

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.

Borrower Defense to Repayment

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.

    Total and Permanent Disability Discharge

    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.

    Public Service Loan Forgiveness

    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. Starting May 1, 2024, however, the PSLF program will be temporarily paused, likely through July. The Department of Education is moving the process in-house rather than having the forgiveness program go through an outside servicer.

    Requesting PSLF Reconsideration

    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.

    Teacher Loan Forgiveness

    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.

    Perkins Loan Cancellation and Discharge

    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:

    • bankruptcy
    • death
    • school closure
    • service-connected disability (veterans)
    • spouse of a victim of the events of 9/11, and
    • total and permanent disability.

    Death Discharge

    Federal student loans can normally be discharged when a student or, in some cases, a parent dies.

    What If the Student Dies?

    Federal student loans, like Direct Loans, FFEL program loans, and Perkins Loans, can be discharged if the student dies.

    When a Parent's Death Can Discharge a PLUS Loan

    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.

    Death Doesn't Necessarily Wipe Out Consolidated Loans

    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.

    Bankruptcy Discharge

    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.

    How to Get Student Loan Forgiveness

    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.

    Making Sure You're on Track for Forgiveness

    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.

    Will I Owe Taxes on My Canceled Student Loans?

    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.

    Getting Help

    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.

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