8 Ways to Cancel Your Student Loan Debt
Ever dream about having your Federal Student Loans partially or even completely forgiven?The good news? It’s not an impossible dream. The bad news? Uncle Sam unfortunately makes it really tough to get out of your promise to repay him. There are only certain conditions that make you eligible, and even if you are, you are not guaranteed to be released from your obligation in some cases.However, here are the 8 main Federal Student Loan Forgiveness scenarios:
1. Teacher Loan Forgiveness
If you’ve been teaching full-time for 5 years or more in a low-income school, and you are a borrower after 10/1/1998, you can cancel up to $17,500 off of your student loans (not including PLUS loans).
There are drawbacks, though. I have a personal friend who is considering this route, but his loan officer explained that he and his spouse had to file taxes separately, and he would not be eligible for many of the tax perks available to him. If you consider this route, be sure to talk with your tax attorney!
2. Public Service Loan Forgiveness
If you are in a public service occupation and made 120 payments on your Direct loans after 1/1/2007 under a qualified plan, you can qualify to have the rest of your loan discharged. It doesn’t seem to be a bad deal if you are in a specific industry and are not in default in the loans you want forgiven, but there are of course certain restrictions that apply.
3. Perkins Loan Cancellation and Discharge
Similar to the Direct loans, for certain public service occupations, you can eliminate a certain percentage from your Perkins student loan debt based on each year of service you accrue.
4. School Closure
If you are either enrolled in classes and the school shuts down on you (even if you are on an approved Leave of Absence) or if you withdraw up to 120 days (4 months) before the school closes, you may be eligible to have your loans 100% discharged. However, to be eligible you must also be sure you aren’t taking classes at another school for a comparable program (if you try to transfer credits, you will be on the hook for the bill) and you haven’t already completed the program requirements at the failed institution.
5. Fraud and Unpaid Refunds
If someone or another entity such as your school takes out student loans fraudulently, you are eligible to discharge those loans. You can also have your loans cancelled if the school certifies you for the loan even if they knew you wouldn’t be qualified in your occupation due to physical or mental condition, age, criminal record, or other reason.
Along the lines of fraud, if you didn’t get a refund you were supposed to receive for classes you withdrew from, you can get those reimbursed as well.
6. Totally and permanently disabled
If down the road you become completely disabled and cannot seek gainful employment, you could have your loans discharged. You will need to provide documentation of the following:
o VA documentation if you’re a US Veteran and your impairment was due to a service-related activity
o Documentation you are receiving Social Security Disability Insurance (SSDI) benefits or Social Security Income (SSI) benefits
o Physician Certification that states that you cannot perform anything gainful due to an impairment
§ without high risk of death
§ that has lasted for over 5 years
§ that will last more than 5 years
7. Death
No, your loans will not follow you to the grave, and you can rest assured that your loved ones will not be harassed by the US Government after you’re gone. In addition, if you are a Parent PLUS borrower and either you or the student pass away, your debts will be forgiven as well. All your loved ones will need to do is submit your death certificate, and the slate will be wiped clean. Too bad you won’t be aroundto enjoy it…
8. Bankruptcy
Though not likely and only in extreme circumstances, your student loans may be discharged after you declare bankruptcy. It may seem like the way to go, but before you run to your bankruptcy lawyer, just know you will have to prove the following in court:
o If you are forced to repay the loan, there would be no possible way you could keep a minimal standard of living
o This hardship would continue over the life of the repayment period
o You have actually tried to pay off the loan for at least 5 years
If somehow you are able to convince a judge of all of this, you’ll be good to go. And according to this post, some judges are becoming more lenient, but the pain of bankruptcy may not be worth the benefit.
Yes, many of these avenues of student loan reduction are unappealing—particularly death—but this is by design; Uncle Sam wants you… to pay what you owe! If you have any questions, feel free to post them below or go to the US Federal Student Aid website for tons more in-depth information on how to become eligible, where to go, and who to talk to about your specific situation.
Good luck!
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Excellent Post! Very good explanation of these different avenues. It would be great if you could include information regarding student loan refinancing options. This is becoming a popular option. It still requires some level of sacrifice, but it definitely can help reduce the impact of your student loan debt burden.