Hundreds of thousands of borrowers have taken advantage of getting their loans discharged through federal programs, for reasons like total and permanent disability (TPD), school closure or bankruptcy. But not everyone qualifies for discharge programs—even though there are almost a dozen of them available at the federal level.
Here’s how to tell the difference between forgiveness and discharge as well as what you need to be eligible.
What Is Student Loan Discharge?
Student loan discharge is when you’re no longer legally required to make payments on your student loans due to extenuating circumstances through no fault of your own. For instance, if you have a permanent disability and can’t work, you likely won’t be able to earn wages to make student loan payments.
Discharge is different from student loan forgiveness or cancellation, however. Both of these are usually reserved for those who work in a specific industry or sector for a set amount of time. Those who qualify for Public Service Loan Forgiveness, for example, need to make at least 10 years of qualifying payments before becoming eligible.
People are also reading…
9 Federal Student Loan Discharge Options
When it comes to private student loans, it’s up to each lender whether or not they offer a discharge option. But if you have federal student loans, here are nine discharge programs to consider:
1. Total and Permanent Disability
You could qualify for total and permanent disability discharge by providing documentation from the U.S. Department of Veterans Affairs, the Social Security Administration or a physician that proves you have a total and permanent disability.
The only TPD loan servicer is Nelnet. Eligible loans and programs include:
- Direct loans
- Federal Family Education Loan (FFEL) Program loans
- Federal Perkins loans
- Teacher Education Assistance for College and Higher Education (TEACH) grant service obligations
2. Borrower Defense to Repayment
If you’ve been misled by your school or the school was found to have violated state laws, you might be eligible to have your loans discharged through borrower defense to repayment.
You’ll need to prove you were misled by the school or that the school violated the law—causing you financial harm. Only direct loans are eligible for this type of discharge. There’s also a chance that only a portion of your loans will be discharged, and you’d still be responsible for the rest.
3. False Certification
If your school falsely certified your eligibility to receive a loan, you might be able to have your direct or FFEL loans discharged. There are three ways you might qualify:
- Ability to benefit: For students that didn’t graduate or earn a GED before entering school, the institution will likely give an “ability to benefit” exam. If there were any issues with how the exam was administered or they failed to give an exam, the loans might be discharged. This might not be as common, however, because as of 2012, students aren’t eligible for federal financial aid without a high school diploma or GED.
- Disqualifying status: If you met the requirements to receive a loan but weren’t eligible to work in your state for the job the institution was preparing you for, you could qualify for disqualifying status. For example, you might not meet state requirements for employment in your occupation due to your age, physical or mental condition, criminal record or other reasons.
- Unauthorized signature or payment: If your school signed your name on either the loan application or promissory note without your consent, you might be eligible for false certification disqualification. You’re also eligible if the school endorsed your loan check or authorized a funds transfer without your knowledge. If the loan wasn’t applied to the charges you owed the institution or given to you, you could also qualify.
4. Unpaid Refund
If you received a loan and withdrew from school before using it, your school might be on the hook for returning those funds to you or your loan servicer. If the school didn’t make the return to your loan servicer, you might be eligible to have a portion of those loans discharged.
5. School Closure
You’re eligible for discharge if the institution closed while you were enrolled or shortly after you graduated. Direct loans, FFEL loans and Perkins loans are all eligible.
If an individual or company forged your signature on a student loan document, you could be eligible for discharge. If you qualify, you could see the entire balance discharged.
7. Borrower Death
If you die, your federal loans will also be discharged. Proof of death is required, either by a family member or another representative.
Parent PLUS loans are discharged if either the parent who took out the loan on a student’s behalf or the student who benefitted from the loan. Direct loans, FFEL loans and Perkins loans are eligible.
Student loan discharge due to bankruptcy isn’t common—but it is possible. During your bankruptcy filing, you’ll need to show that repaying your student loans would cause an undue hardship to qualify. You’ll have to file a separate action called an adversary proceeding. Your student loan lender and other creditors might be present at your hearing.
Your loans could be partially or fully discharged, depending on the court’s ruling. There’s also a chance you’ll be required to repay your loan but with modified terms like a lower interest rate.
9. Perkins Loan Discharge
New Perkins loans are no longer issued as of 2017. But if you still have Perkins loans from years prior, you can get them discharged through bankruptcy, a school closure, death or total and permanent disability.
You might be eligible to have some or all of your Perkins loans discharged, depending on your circumstances.
How to Apply for Student Loan Discharge
Only the federal government and authorized student loan servicers can manage the discharge of federal loans. While each discharge program has its own requirements, you can still follow these steps to apply:
- Complete an application. There are more than a dozen different types of forgiveness, cancellation and discharge options. Find the program you think you’re eligible for and complete an application. If you’re unsure which one you might be eligible for, you can contact your servicer.
- Provide documentation. Each program has specific requirements for discharge, so be prepared to show more than one type of documentation to prove your eligibility.
- Keep up with your payments if necessary. Some programs require you to continue making student loan payments while your application is under review. Others will pause your payments during the application process for a set amount of days to allow you to submit your application and provide your proof.
- Wait for approval. If your application is approved, you might still be responsible for a portion of your loan. If your loans are completely discharged, you’re no longer obligated to make payments. If your application was denied, you’ll continue or resume payments as you previously made them.
- Review any tax implications. Different discharge programs have varying tax implications. In general, discharged loans and other canceled debt are considered taxable. But every case is different. For those who qualify for a total and permanent disability discharge from 2018 up until 2025, the amount discharged won’t be considered taxable income.