What Is Loan Forgiveness, Cancellation, and Discharge?

If you qualify for loan forgiveness, cancellation, or discharge, you do not have to repay the rest of your federal student loans. However, the obligation to continue making payments on your loans is terminated only if you meet very specific requirements. Loan forgiveness, cancellation, or discharge does not usually affect any payments you made before being granted approval for one of these options by your loan servicer.

Find out how to apply to have your loans discharged, canceled, or forgiven, including details about the specific circumstances which may qualify you for one of these options.

Loan Forgiveness

Loan forgiveness programs are designed to encourage borrowers to enter certain types of professions. There are two types of loan forgiveness programs available:

  • The Teacher Loan Forgiveness Program.
  • The Public Service Loan Forgiveness Program.

Each program has a unique set of criteria a borrower must meet in order to qualify.

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The Teacher Loan Forgiveness Program is available to borrowers who teach at schools or educational service agencies serving low-income families. In order to qualify, you must teach full time for five consecutive and complete academic years in an approved school district. Depending on your teaching status, you may receive up to $17,500 in loan forgiveness through the program.

To be considered for loan forgiveness through this program, you must complete an application, which includes a certification section that the administrative officer at your school must fill out, and submit it to your loan servicer.

The Public Service Forgiveness Program is available to borrowers who work full time for government organizations or 501(c)(3) nonprofit organizations. Those who serve full time as members of the Peace Corps or AmeriCorps may also qualify. Working for a partisan political organization, labor union, for-profit organization, for-profit government contractor, or a nonprofit without 501(c)(3) status will not qualify you for this federal loan forgiveness program.

Those who do qualify for the Public Service Loan Forgiveness Program will have the remaining balance on their Direct Loans forgiven after making 120 qualifying monthly payments. In order for your payments to qualify, they must be paid in the full amount and on time while you’re working for an eligible employer. The payments do not need to be consecutive; you can apply for deferment or forbearance or work for a non-qualifying employer for a period of time and still have your loans forgiven through the program, provided you meet the other requirements.

In order to be considered for loan forgiveness through this program, you must complete an Employment Certification Form. While it is not required, you can submit this form each year that you are working for an eligible employer to learn whether you qualify.  After your final qualifying payment has been made, you must submit your Public Service Loan Forgiveness application. In order to be eligible, you must be working for an eligible employer at the time you submit your application and when the remaining balance on your federal student loans are forgiven.

Loan Cancellation or Discharge

In many cases, the terms “loan cancellation” and “loan discharge” are used interchangeably. Different types of loans require specific qualifications in order to qualify.

Cancellations of Perkins Loans are available under certain circumstances, including serving in certain occupations or performing specific types of public service. Perkins Loan cancellations are generally made on a percentage basis; for each year of service, a percentage of the loan may be eligible for cancellation. With a few exceptions, Perkins Loans may have up to 100 percent of the loan canceled if one or more of the following qualifications are met:

  • Your school closed before you could complete your program of study.
  • You are a volunteer for the Peace Corps or VISTA.
  • You are a member of the U.S. armed forces serving in an area of hostilities.
  • You are employed full time as a firefighter, law enforcement officer, corrections officer, public defender, nurse, medical technician, or teacher.
  • You are a staff member at a child or family services agency, early intervention services agency, or Head Start program.
  • Your school closed before you could complete your program of study.
  • You declared bankruptcy (in rare cases).
  • You suffered a permanent disability or died.

Contact your school or loan servicer to find out how to apply for Perkins Loan cancellation.

For the discharge of Direct Loans and FFEL Program Loans, you will need to meet at least one of the following qualifications:

  • Your school closed before you could complete your program of study.
  • You declared bankruptcy (in rare cases).
  • Your identity was stolen to obtain federal student loans.
  • Your school falsely certified your eligibility to receive the loan or endorsed your loan check without your knowledge.
  • You withdrew from school, but the school didn’t pay the refund is owed to the loan servicer.
  • Your school misled you or defrauded you with false information (also known as borrower defense to repayment).
  • You suffered a permanent disability or died.

If you fulfill at least one of these requirements, contact your loan servicer for more information about how to apply for loan discharge.

Waiting for Approval

It’s important to note that while you wait to find out if your request for loan forgiveness, cancellation, or discharge is approved, you must continue making monthly payments on your federal student loans. In some cases, your loan servicer may be able to grant your forbearance until a decision is made regarding your application. Those performing service or working full time in public service or teaching positions may qualify for deferment during this period.

If your request is approved, you will no longer be required to make payments on your loans. In addition, some or all of the payments you made may be refunded to you based on the circumstances of your cancellation or discharge.

Be sure to inquire about loan forgiveness, discharge, or cancellation if you believe you may qualify. If you are not approved, however, keep in mind that you must continue to repay your loan as originally required until it is paid in full.