Can student loans ever be discharged?

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Student loans can be discharged, but only in certain circumstances. When federal student loans are discharged, your requirement to pay back some or the entire remaining amount of your debt due is eliminated. However, this usually only happens in unique life situations, such as school closure, disability or death.

 

We will cover the circumstances under which you may qualify for student loan discharge, as well as your alternative options for handling student loan debt.

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Related: What is a direct consolidation loan?

When You Can Discharge Student Loans

Interested in discharging your student loans? Here are some of the circumstances under which you may qualify.

1. Total and Permanent Disability Discharge

To qualify for a federal student loan discharge due to disability, you must have a “total and permanent” disability that can be verified by the U.S. Department of Veterans Affairs, the Social Security Administration or a qualified doctor. You also must complete a discharge application, which includes documentation showing you meet the government’s requirements for being considered disabled.

 

Veterans may be eligible for student loan discharge if they can provide paperwork from the VA demonstrating they either have a disability that is 100% disabling due to their service or are totally disabled due to an individual unemployability rating.

 

For those individuals who are eligible for Social Security Disability Insurance or Supplemental Security Income, you may also qualify for loan discharge by providing documentation of your Social Security award.

 

Unfortunately, not all private student loans give you the option to discharge your loans if you’re permanently disabled. So while you might be able to discharge your federal student loans because of disability outside of the courtroom, that’s not necessarily the case for private loans. If you’re permanently disabled and looking to get out of private loans, you may have to consider legal action (but that’s up to you and your attorney to determine).

2. Student Loan Discharge Due to Death

Federal student loan discharge may also be granted if the borrower dies. Parents who have taken out Parent PLUS loans on behalf of a student may also have these loans forgiven if the student dies. For this to occur, proof of death, such as an original death certificate or certified copy, must be submitted.

3. Declaring Bankruptcy and Discharging Student Loans

Filing for bankruptcy does not automatically cancel or discharge your student loans. In fact, your federal student loans will only be possibly eligible for discharge during bankruptcy if you file a separate “adversary proceeding.” That essentially asks the court to find that repayment of your loans would impose undue hardship on you and any dependents.

 

It’s best to consult with a qualified professional, such as an attorney specializing in bankruptcy law, before making any decisions. Also, keep in mind that bankruptcy will impact your credit.

4. Closed School Discharge of Loans

For a 100% discharge of certain loan types, including Direct Loans, FFEL and Federal Perkins loans, you can also show that you were unable to complete your degree program because your school closed. However, for this to apply, you must meet one of the following criteria:

  • You must have been enrolled at the time the school closed
  • You must have been on an approved leave when the school closed
  • Your school closed within 120 days after you withdrew if your loans were first disbursed before July 1, 2020 (180 days if your loans were first disbursed on or after July 1, 2020)

Only federal student loans can be discharged directly with the application due to school closure and other circumstances. For private loans, you must contact your lender directly to see if you will qualify with them.

5. False Certification Discharge

In very rare circumstances, you may be eligible for a discharge if loans were issued but they should not have been given out to you in the first place. For instance, this may apply if:

  • Your school falsely certified that you had a high school diploma or GED
  • You had a disqualifying status, such as a physical or mental condition, criminal record or other circumstance, at the time of the school-certified your eligibility
  • Someone else or your school signed your name on the loan application or promissory note

In all of the above circumstances, your loans might be discharged.

6. Unpaid Refund Discharge

If you leave school after getting a loan, your school may also be required to return part of your loan money. You can become eligible for a partial discharge if you withdraw from school and the college did not return the portion it was required to under the law.

 

In this case, only the amount of the unpaid refund would be discharged.

Alternatives to Discharging Student Loans

Since qualifying for a student loan discharge is only permitted under particular circumstances, it’s important to look at other options for federal loans. Here are some of the other choices you may have to help pay off your student loan debt:

  1. Forbearance: Forbearance temporarily allows you to stop making your federal student loan payments or reduce the amount you have to pay. Usually, you must be unable to make monthly loan payments because of financial difficulties, medical expenses or changes in employment.
  2. Deferment: You can also opt to defer your loans in certain circumstances, such as going back to school. Depending on your loan type, your loans may still accrue interest while in deferment. However, if you qualify for deferment on federal subsidized loans, you generally will not be charged interest during deferment.
  3. Income-based repayment: With income-based repayment, you can reduce your monthly student loan payments if too much of your income is currently going toward them. You’ll make monthly payments of 10% to 20% of your monthly discretionary income, and then after 20 or 25 years of on-time payments, your remaining balance is forgiven.
  4. Cancellation: There is also the possibility of cancellation of Perkins Loans if that is the type of loan you have. You can qualify for up to 100% cancellation if you have served full-time in a public or nonprofit elementary or secondary school system as a teacher serving low-income students or students with disabilities or who teach in a certain field.
  5. Forgiveness: For certain qualifying public service jobs, student loan forgiveness may be an option. With this option, your remaining student loan balance will be forgiven after you make 120 qualifying monthly payments while working full-time for a qualifying employer, which can include government organizations and certain not-for-profit organizations.

When to Refinance Your Student Loan Debt

Unlike student loan forbearance or deferment, which are temporary, short-term solutions, student loan refinancing can be a long-term debt solution. If you don’t qualify for other options we’ve discussed, refinancing can help simplify your repayment process since all of your loans can be taken care of with one monthly payment. If you refinance with a private lender, you can also change the term length on your student loans.

 

It is important to remember that if you refinance your student loans with a private lender, you will forfeit your eligibility for federal loan benefits, such as student loan forgiveness or deferment.

The Takeaway

As you can see, it is possible to discharge student loans, but only in unique life circumstances, such as disability or false certification. If you do qualify, that could result in some or all of your student loans going away, though you may have to pay taxes on the discharged balance.

 

Learn More:

This article
originally appeared on SoFi.com and was
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Private student loan relief options

 

Private student loans can help fill the gap needed for students to pay for their tuition and living expenses, but they do not have the same relief programs that federal student loans provide.

 

Federal student loans offer more borrower protections after students graduate, especially if they face difficult economic circumstances such as the loss of a job, being furloughed from a position or if their salary is inadequate to pay all their bills.

 

When borrowers take out a federal student loan, they have a few different options to choose from such as forgiveness or deferment programs until their financial circumstances change.

 

Related: How do
student loans affect your credit score?

 

fizkes / istockphoto

 

The options for private student loan relief are fewer. Private student loan forgiveness does not exist and no lenders offer this option.

 

When graduates face hurdles in repaying their private student loans, some lenders provide their own temporary assistance programs. These programs may provide temporary assistance to borrowers and the programs will vary based on the lender.

 

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Read the fine print on temporary relief programs offered by private lenders. Generally, interest will continue to accrue while the loan is in forbearance, which can make the loan more expensive in the long-term.

 

However, if you’re struggling to make repayments, securing forbearance could help provide breathing room to help you get back on track without missing payments.

 

If you are not sure whether or not the lender offers forbearance or other temporary assistance programs, try to contact them before missing any payments. They may have an option that could help or be willing to work with borrowers who are struggling.

 

Missing payments can potentially impact a borrower’s credit score. And if the borrower has a co-signer, their credit score may feel an impact as well.

 

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The federal government has extended some relief options to borrowers with federal student loans due to the COVID-19 pandemic. Most of these policies do not apply to borrowers with private student loans.

 

As of March 2021, some borrowers with private student loans in default qualify to have their student loan payments paused. Borrowers with a defaulted loan made through the Federal Family Education Loan (FFEL) Program, may qualify for the federal protections offered. The FFEL program loans were made by private companies but were backed by the federal government. The program ended in 2010.

 

 

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Since there aren’t any real loan forgiveness options available for borrowers with private student loans, repaying them may become a financial priority. The repayment period for private student loans may vary based on lenders, so review the terms and payment schedule with your lender.

 

Some private student loans may have a grace period—a period of time after a student graduates where payments are not due. This will depend on the lender, so review your loan terms to find out if your private loan is eligible for a grace period. Interest may accrue during the grace period.

 

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Other strategies to that can help students as they repay their student loans include:

  • Budgeting with Purpose. Factor student loan payments into your budget and prioritize repayments.
  • Enrolling in automatic payments. This can help you avoid missing payments. Some lenders may even offer a rate discount to borrowers who do enroll, so it’s worth asking.
  • Funneling additional income to student loans. Influx in cash thanks to a recent birthday, tax refund, bonus at work? Make an overpayment to the student loan.
  • Consider refinancing. Student loan refinancing can help qualifying borrowers secure a more competitive interest rate or preferable terms. Lowering the interest rate on a student loan could help borrowers save money over the life of the loan.

 

 

DepositPhotos.com

 

Refinancing could result in a lower interest rate which could also lower the minimum monthly payment. In some cases, getting a lower monthly payment requires extending the life of the loan, which can ultimately cost more.

 

Student loan refinancing means a new loan is obtained at a new interest rate and possibly a new term or the number of years you have to pay off the loan.

 

Borrowers can generally choose between fixed or variable interest rates, depending on the options available at the lender they have decided to borrow from.

 

Private lenders will generally rely on information like a borrower’s credit score and employment history to determine how much money a person can borrow, and at what interest rate.

 

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Borrowers who are able to secure a lower interest rate may find that refinancing can help them spend less over the life of the loan. Additionally, a borrower with multiple private student loans might appreciate the opportunity to streamline their monthly payments to a single sum with a single lender.

 

 

DepositPhotos.com

 

Some borrowers may be able to get some private student loan assistance, depending on the programs offered and policies in place with their private lender. In some cases, refinancing may make sense for borrowers who can qualify for a lower interest rate.

 

Learn More:

This article
originally appeared on 
SoFi.comand was
syndicated by
MediaFeed.org.

 

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IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UNTIL THE END OF SEPTEMBER DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE  FOR MORE INFORMATION.
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IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UNTIL THE END OF SEPTEMBER DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE  FOR MORE INFORMATION.

 

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