Millions of college graduates owe tens of thousands in federal student loans. My monthly payment is $600. That’s a big chunk out of this mom’s already overstressed budget. I don’t know about you, but getting rid of some or all of those student loans could be a game-changer for me.
And in certain circumstances, you can.
Federal student loan debt cancellation is a hot-button topic. But some borrowers already have the ability to get rid of their federal student debts through a lesser-known existing system known as discharge. It erases your debt under certain circumstances, and if you qualify, all you have to do is apply.
How to Discharge Federal Student Loans
Federal student loans offer many benefits private student loans don’t. One of these is a list of borrower protections that allow you to have some or all of your debt discharged if the debt becomes too burdensome or it would be unfair to make you repay, such as if you’re the victim of fraud.
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Though some private, state, and institutional lenders offer one or two borrower protections, none come close to providing the amount the U.S. Department of Education (ED) does.
And if you meet any of the criteria, the federal government will cancel the applicable portion of your student loan balance.
1. Bankruptcy Discharge
One way to qualify for a discharge of any type of federal student loan debt, including direct loans, FFEL (federal family education loan) program loans, and Perkins loans, is to be legally bankrupt. That involves getting the court to acknowledge you have such a degree of debt in excess of your income and assets you can’t repay it. However, discharging your student loans through bankruptcy isn’t as easy as it is for other types of debt.
Student loans are typically exempt from bankruptcy discharge. That doesn’t mean you can’t discharge them. It means they’re outside the standard rules and formulas for eliminating debt in a bankruptcy proceeding. So they won’t be automatically discharged just by meeting the requirements for bankruptcy.
Instead, you must file a separate suit called an adversary proceeding against the Department of Education. Its purpose is to prove the bankruptcy should include your federal student loans.
Winning a student loan bankruptcy discharge, especially a discharge of federal student loans, is exceedingly difficult. You must prove repaying your loans would cause an “undue hardship,” which the courts have generally interpreted to mean:
- If you must repay the loans, you won’t be able to maintain a minimal standard of living.
- Your financial situation is likely to endure for most of the repayment period.
- You made a good-faith effort to repay your student loans before declaring bankruptcy.
This standard is difficult to meet since the federal government has so many repayment options, including income-driven repayment plans, which can calculate your monthly payment as low as $0 if you’re unemployed or close enough to the poverty line.
Moreover, even if a judge agrees to a bankruptcy discharge of your federal student loan debt, the government has a long history of appealing these decisions.
Thus, if you decide to go this route, prepare for a long and potentially expensive process. It’s not one to be undertaken lightly, and you should carefully consider whether it’s worth the effort. It’s also not a process you should undertake without the help of an attorney well versed in student loans.
2. Borrower Defense to Repayment (School Misrepresentation) Discharge
If your school defrauded you, you might have a claim for borrower defense to repayment. To qualify, you must have a federal direct loan (other loan types don’t qualify) and prove your school either engaged in illegal or deceptive (misleading) practices that:
- Violated state laws
- Directly related to your ability to benefit from your program and the loans you took out to attend school
For example, In June 2022, the government announced that Corinthian Colleges attendees could have their loans discharged through borrower defense to repayment because the school misrepresented its graduates’ employment prospects, job placement rates, and the transferability of their credits.
But that’s not the first time. In April 2022, the government granted borrower defense to repayment to those who attended Marinello School of Beauty because the program failed to provide the necessary instruction regulations required. And in February of 2022, it did the same for those who attended ITT’s nursing program because the institution lied to students about the program’s accreditation.
If your school used similar tactics to mislead you and other borrowers into taking out loans to attend, you’re entitled to file a claim, and you may not have to pay back your loans.
But you must prove your school engaged in misleading or illegal conduct directly related to your loans or education. Documents like promotional materials, enrollment agreements, transcripts, emails with school officials, and course catalogs could help support your claim.
To apply for a borrower defense to repayment discharge, visit FederalStudentAid.gov and complete the online form.
Be forewarned: While the government reviews your claim, it will put your loans into forbearance. You won’t have to repay your loan if it approves your application. But if it denies your claim, you will have to restart payments, plus you’ll owe any interest that accrued during the forbearance.
3. Closed School Discharge
If your school closes while you’re enrolled or shortly after you withdraw, you could qualify for a student loan discharge of any of your federal student loans. That’s because you won’t have had the chance to complete your program and benefit from your loan.
Note that you don’t qualify for a closed school discharge if you completed your program and received a degree. Instead, you must have been:
- Enrolled when your school closed
- On an approved leave of absence when your school closed
- Attending a school that closed on or after Nov. 1, 2013, but before July 1, 2020, and you did not transfer credits to another school within three years
- Withdrawn within 120 days before your school closed (for loans before July 1, 2020)
- Withdrawn within 180 days before your school closed (for loans on or after July 1, 2020)
If you meet the eligibility criteria for a discharge due to school closure, the Department of Education should automatically send you an application you can submit to your loan servicer. However, you don’t need to wait. You can contact your loan servicer directly to start the application process.
If the government approves your application, you no longer need to continue making loan payments. It could even refund you some or all of your past payments. However, you’re responsible for the monthly payments on your loan while the government reviews your application.
4. Discharge Due to Death
Many debts, including some private student loans, fall to your heirs when you die. Creditors can collect against a borrower’s estate without this protection.
Fortunately, all federal student loans are dischargeable if the borrower dies. That may not benefit you now, but it’s comforting to know what happens to your debt when you die if you’re worried it may negatively impact loved ones.
Additionally, parents who borrowed one or more PLUS loans to pay for their child’s education can have their PLUS loans discharged if the student dies.
If a borrower or child dies, a family member or representative must send a death certificate, a certified copy of the death certificate, or an accurate and complete photocopy of one of those documents to the loan servicer.
All their federal student loans will then be discharged.
5. False Certification Discharge (the School Shouldn’t Have Certified Loan Eligibility)
Borrowers who’ve been victims of false certification are eligible to have their federal direct and FFEL loans discharged. In essence, you aren’t responsible for paying back loans if your school misrepresented your eligibility for the loans or a job in that field or your desire to take them out.
To qualify, one of the following three categories of circumstances must apply:
- Ability to Benefit. Your school certified you eligible to receive student loans even though you didn’t meet the eligibility requirements.
- Disqualifying Status. You trained for an occupation you can’t work in due to a physical or mental condition, your age, a criminal record, or another disqualifying reason.
- Unauthorized Signature or Unauthorized Payment. Your school signed your name on an application or promissory note without your knowledge. Or the school endorsed your loan check or authorized a funds transfer without your knowledge and didn’t apply the funds to your account or refund the money to you.
To apply for a false certification discharge, you must fill out the appropriate form for the right circumstance, which you can find online at StudentAid.gov.
You should only complete a false certification discharge for an unauthorized signature or payment if you think an employee at the school signed loan documents without your knowledge.
If you think someone else used your information to take out loans in your name and that you’re the victim of identity theft, you should apply for the forgery discharge.
6. Forgery (Identity Theft) Discharge
If you’ve been the victim of identity theft, you’re eligible to have those loans discharged.
In its most basic sense, forgery is the creation of a false written document or alteration of a genuine one with the intention of committing fraud.
For the purposes of the federal student loan forgery discharge, forgery also includes using your personal information without your permission and, therefore, also encompasses online identity theft.
Thus, the forgery discharge allows you to submit a discharge claim for any student loan fraudulently made in your name by an individual or organization (other than a school employee) due to identity theft.
To apply for a forgery discharge, complete the forgery loan discharge application, which you can find online at StudentAid.gov.
7. Total & Permanent Disability Discharge
If you’re facing a long-term physical or mental disability that leaves you unable to work, you may qualify for a total and permanent disability discharge.
To be eligible, you must provide documentation proving your disability from one of three sources:
- The U.S. Department of Veterans Affairs (VA). If you’re a veteran, you can apply for a disability discharge by providing documentation from the VA that shows you have a disability that’s 100% disabling or are totally disabled based on an individual employability rating.
- The Social Security Administration (SSA). If you receive Social Security Disability Insurance or Supplemental Security Income, you can qualify if you submit supporting documentation that shows your next disability review will be five to seven years or more from the date of the last one.
- A Physician. You’re also eligible if your doctor certifies on your application that you’re unable to engage in any substantial gainful activity and have a physical or mental impairment that will result in death or has lasted for at least 60 months and will last for at least another 60.
Whatever the source of your documentation, it must show you cannot work. As a result, you can’t repay your student loans.
To apply for a disability discharge, visit disabilitydischarge.com (a site owned by Nelnet, a government loan servicer), and select “Application Process” from the menu bar. Then send it to Nelnet regardless of who your regular loan servicer is. Nelnet processes all disability discharges for the government.
Once Nelnet receives your application, required payments on your loans pause for 120 days to give it time to process your application.
If the government approves your loan discharge, it cancels your remaining balance and refunds any payments you made after the effective date of the disability.
However, if your discharge is based on SSA or physician documentation, the federal government will monitor your finances and disability for three years. If you don’t continue to meet the requirements during that time, it will reinstate your loans.
8. Unpaid (School) Refund Discharge
This discharge is fairly straightforward. If you withdrew and your school didn’t return the portion of federal direct or FFEL loan funds you didn’t use, you’re entitled to a discharge of that amount.
However, the process for this discharge may require you to follow a few extra steps. Before applying for an unpaid refund discharge, you must first try to resolve the issue with your school. In other words, if your school is still open, contact your school’s financial office and find out why it didn’t return your funds. It could have been a simple clerical error.
If your school is no longer open, you may have a claim for a closed school discharge instead. In that case, contact your loan servicer to determine the correct course of action.
If neither move resolves the issue, only then should you apply for the unpaid refund discharge by completing the unpaid refund discharge application form, which you can find online at StudentAid.gov.
If the government approves your claim, it will only discharge the portion of your loans your school should have returned, not the entirety of your student loan balance.
Federal Student Loan Discharge FAQs
There are many ways to eliminate your student loan balance, each with its own set of eligibility criteria and application requirements. Your student loan servicer is the best resource for the exact specifics of each discharge option. But for your general student loan discharge questions, we have plenty of answers.
How Do I Apply for a Student Loan Discharge?
Typically, you fill out the appropriate form, which you can usually find on StudentAid.gov, and supply any required supporting documentation. Then you send everything to your student loan servicer. Alternatively, you can contact your servicer directly.
However, the application process can vary significantly in the details, with some requiring far more documentation than others. For example, for a disability discharge, you must provide documentation from a certifying agency or individual, such as the VA, SSA, or a physician, and unless the documentation comes from the VA, the federal government continues to monitor your disability for three years.
And if you attempt a bankruptcy discharge, you must go to court and sue the government for a discharge, a potentially complicated and lengthy process.
On the other hand, a death discharge simply requires submitting a death certificate. And a closed school discharge is automatic in many cases.
Note that if you’re attempting to discharge a federal Perkins loan, you should contact the school that made the loan or the servicer the school designated. Perkins loans were low-interest-rate loans schools made directly to students, and the government only backed them.
Are Defaulted Student Loans Eligible for Discharge?
If you’re in default, it can be difficult to take advantage of other student loan features, including deferment, forbearance, and even forgiveness. However, default isn’t a hold-up for student loan discharge.
What Happens if My Application Is Denied?
If the government denies your application for a discharge, you remain responsible for repaying your loans and may be responsible for any interest that accrued during the forbearance, if applicable.
If you believe your application was denied in error, contact your servicer for more information to find out why. You can also appeal to the government to have your case reviewed. The process for that varies based on the type of discharge you applied for.
For example, if you’re denied a borrower defense to repayment claim, you can submit a request for reconsideration along with any new evidence. If you’re denied a discharge for total and permanent disability, you have one year to appeal and submit additional evidence supporting your condition. If that doesn’t work, you can resubmit if your condition worsens. In either case, you can appeal in federal court if you think the government was in the wrong.
Regardless of the type, it’s always wise to consult with a professional, such as an attorney who specializing in student loans. They can help you figure out your options and next steps.
How Are Student Loan Discharges Taxed?
Large canceled balances, such as student loan balances, can result in a potentially hefty tax bill.
Thus, while an approved student loan discharge may feel like a weight taken off your shoulders, it’s not always a get-out-of-debt-free card. Unfortunately, it could be considered taxable income. So you may need to prepare for one final student loan expense.
Fortunately, some forms of student loan discharge are always statutorily (by law) tax-free. These include bankruptcy, borrower defense to repayment, closed school, false certification, forgery, and unpaid refund discharges. All others are traditionally taxable at your income tax rate.
However, in 2017 and 2018, Congress exempted death and disability discharges from taxation through 2025. It did the same with the rest through the 2020 American Rescue Plan. So if you can get any kind of discharge by then, you’ll owe no taxes.
If you receive a discharge after those more recent laws sunset (stop applying), you may owe taxes on any statutorily taxable discharge types unless Congress extends them or makes them permanent.
What Are My Other Options for Help With My Student Loan Payments?
It’s relatively rare for most federal student loan borrowers to qualify for discharge.
However, other options exist for lowering your payments and wiping out your student loan debt. Income-driven repayment plans can lower many borrowers’ monthly payments to a level they can better afford, as low as $0 for the unemployed or those near the poverty line.
And since those repayment plans are part of public service loan forgiveness, they may eventually eliminate your debt in exchange for several years of service working full time in a nonprofit or public-sector job.
If you’re a teacher, you can also look into the federal Teacher Loan Forgiveness Program. It forgives a portion of your federal direct or FFEL loans, up to $17,500, over five years in exchange for working in a shortage area or teaching a high-need subject like special education or math.
Although it’s not a direct way to lower your monthly payment, you can defer your loans (meaning you pay $0 per month) while working toward teacher loan forgiveness. The deferred payments won’t count toward public service loan forgiveness. But you can’t use the two programs simultaneously, anyway. So only apply for teacher loan forgiveness if your debt is small enough that foregoing public service loan forgiveness makes sense for you.
Likewise, if you have any federal Perkins loans and work in a list of defined public service fields, you can have a portion of your Perkins loans forgiven, up to 100%, over five years. Each career field has its own requirements, so see StudentAid.gov for more information.
Additionally, every state in the U.S. has at least one state-based student loan repayment program to help reduce your loan balance, depending on your profession and type of loans. Even if they only shave a few years of payments off, the net effect is a lower monthly payment because you owe less overall.
Plus, plenty of employers offer programs to help pay off student loans. Those programs could land you coverage for as much as 100% of your monthly payment. And though it’s still a small overall percentage, more and more are recognizing it as a valuable job perk every year.
Any of these programs (and in some cases, a combination thereof) can lower your monthly payment or reduce or eliminate your overall debt.
Be on the lookout for scammers. Because so many borrowers are desperate to get relief from their burdensome student loan debt, so-called debt relief companies are swooping in to take advantage. They promise to get rid of your student loan debt fast but rarely deliver after charging high upfront fees.
But the only way to get your federal student loan debt discharged is through one of the legitimate government discharge programs. And it costs nothing to apply to them.