Navigating the realm of student loans can be complex, especially when it comes to understanding the nuances of loan cancellation, forgiveness, and discharge This guide aims to demystify these terms and provide you with a clear understanding of when and how your student loan debt may be forgiven.
What does it mean when a loan is cancelled?
Loan cancellation refers to the complete elimination of your outstanding debt. This means you are no longer obligated to repay the loan amount, and the lender releases you from any further financial responsibility.
What are the various ways a loan can be cancelled?
There are several scenarios under which your student loan may be cancelled:
- Bankruptcy: In rare cases, if you file for bankruptcy, your student loan may be discharged. However, this option should be considered a last resort due to its significant impact on your credit score and financial standing.
- Closed School Cancellation: If the school you attended closes down before you complete your program, your loan may be eligible for cancellation. This applies to both federal and private loans.
- Death Cancellation: In the unfortunate event of your death, your federal student loans will be automatically cancelled. Private loans may also be cancelled, depending on the terms and conditions of the loan agreement.
- Disability Cancellation: If you become permanently disabled, your federal student loans may be cancelled. This applies to both undergraduate and graduate loans.
- False Certification by School Cancellation: If your school falsely certifies your eligibility for a federal student loan, the loan may be cancelled.
- False Certification due to Identify Theft Cancellation: If your identity is stolen and used to obtain a federal student loan, the loan may be cancelled.
- Fire Fighter Cancellation: Firefighters who work for a qualifying fire department may be eligible for cancellation of their federal student loans after five years of service.
- Law Enforcement or Corrections Officer Cancellation: Law enforcement officers and corrections officers who work for a qualifying agency may be eligible for cancellation of their federal student loans after five years of service.
- Librarian Cancellation: Librarians who work for a qualifying library may be eligible for cancellation of their federal student loans after five years of service.
- Military Service Cancellation: Members of the U.S. military who serve on active duty in a combat zone may be eligible for cancellation of their federal student loans.
- Nurse or Medical Technician Cancellation: Nurses and medical technicians who work for a qualifying facility may be eligible for cancellation of their federal student loans after five years of service.
- Professional Provider of Early Intervention Services for the Disabled Cancellation: Professionals who provide early intervention services for the disabled may be eligible for cancellation of their federal student loans after five years of service.
- Public or community defender cancellation: Public defenders who work for a qualifying agency may be eligible for cancellation of their federal student loans after five years of service.
- Public or Non-Profit Child or Family Services Agency Employee Cancellation: Employees of qualifying child or family services agencies may be eligible for cancellation of their federal student loans after five years of service.
- Public Service Employees Loan Forgiveness: Public service employees who work for a qualifying employer may be eligible for forgiveness of their federal student loans after 10 years of service. This program is available for both Direct Loans and FFELP loans.
- Speech-Language Pathologist Cancellation: Speech-language pathologists who work for a qualifying school or agency may be eligible for cancellation of their federal student loans after five years of service.
- Spouses and Parents of September 11, 2001 Victims and Public Servants Cancellation: Spouses and parents of victims of the September 11, 2001 attacks, as well as public servants who died in the line of duty, may be eligible for cancellation of their federal student loans.
- Teacher Loan Forgiveness: Teachers who teach for five consecutive years in a low-income school or educational service agency may be eligible for forgiveness of up to $17,500 of their federal student loans.
- Tribal College or University Faculty Cancellation: Faculty members who teach for five consecutive years at a qualifying tribal college or university may be eligible for cancellation of their federal student loans.
- Unpaid Refund Cancellation: If you receive a refund from your school that you are required to repay to the Department of Education, the refund may be cancelled if you meet certain eligibility requirements.
- VISTA or Peace Corps Volunteer Cancellation: VISTA or Peace Corps volunteers who serve for a minimum of one year may be eligible for cancellation of their federal student loans.
Important Note: The only cancellation programs included in this chart are those run by loan holders, guarantors, and the U S. Department of Education. It does not include private student loans.
Additional Programs:
Besides the programs listed above, there are other federal programs that may help you reduce your student loan debt, such as the Faculty Loan Repayment Program, National Health Services Corps – Loan Repayment Program, NURSE Corps Loan Repayment Program, and Veterinary Medicine Loan Repayment Program.
How to Apply for Loan Cancellation:
Get in touch with your loan holder or servicer if you think you could be qualified for loan cancellation. Make sure you get in touch with all of your loan holders or servicers, and continue to make payments until you receive written notice from each of them canceling your loan.
Remember:
- Only a portion of a Direct Consolidation Loan (Federal Consolidation Loan) may be eligible for cancellation, forgiveness, or discharge.
- Public Service Employees Loan Forgiveness is only available for Direct Loans (not loans from the former Federal Family Education Loan Program).
Comprehending your options for loan cancellation, forgiveness, and discharge will enable you to manage your student loan debt more skillfully. You can see if you qualify for any relief and possibly lessen your financial burden by looking into the different programs that are available and getting in touch with your loan holders or servicers.
How Debt Cancellation Works
There are several ways to get rid of debt, such as through debt relief programs, personal bankruptcy, or talks between the debtor and creditor. Debts forgiven by a creditor are generally considered taxable income. Usually, the creditor will report canceled debt on a 1099-C form to both the debtor and the IRS.
Here is a closer look at each debt cancellation option, along with the benefits and drawbacks of each.
Bankruptcy
In some situations, bankruptcy may be the best (or only) option for a borrower. There are various forms of bankruptcy; the most prevalent ones for individuals are Chapters 7 and 13.
In Chapter 7, the borrower’s assets are sold off, or liquidated, in order to at least partially satisfy their creditors. In Chapter 13, the debtor may retain certain assets but is required to consent to a repayment schedule overseen by the court.
Bankruptcy can have long-term negative consequences for the consumer and is not to be entered into lightly. For instance, a person’s credit report may show up to 10 years for a Chapter 7 bankruptcy and up to 7 years for a Chapter 13 bankruptcy.
Student Loan Forgiveness: President Biden’s NEW PLAN 2024
FAQ
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