Student Loan Forgiveness

DEFINITION of 'Student Loan Forgiveness'

Under certain circumstances, federally backed student loans – such as Direct Subsidized Loans and Federal Perkins Loans – can be discharged or forgiven. For a loan to be discharged, circumstances beyond the borrower’s control that prohibit the repayment of the loan must be identified. Requirements for student loan forgiveness vary depending on the type of loan, but most offer forgiveness for those employed in certain public-service occupations.

BREAKING DOWN 'Student Loan Forgiveness'

Federal education loans must be repaid with interest in most situations. The borrower is not excused from repayment due to dissatisfaction with the school or educational program, dropping out of the program before graduation or inability to find a job after graduation.

Student loan programs vary, and it is best to speak with a qualified student loan consultant, but most federal education loans can be discharged in the following situations:

  • Permanent disability
  • Closure of the school during the time of study
  • Falsification of the loan qualifications by the school
  • Use of identity theft to secure the loan
  • Failure of the school to refund required loans to the lender
  • Death of the borrower

To encourage employment in public-service occupations, the federal government may waive repayment of William D. Ford Federal Direct Loans, if the borrower enters public service. This is referred to as Public Service Loan Forgiveness (PSLF).

To qualify for PSLF, the borrower will need to have already made 120 on-time, full payments to his/her direct loan, while working full-time at a qualifying public-service organization.

If you do not have a William D. Ford Direct Loan, and instead borrowed through the FFEL Program or Perkins Loan Program, you are allowed to consolidate these into a Direct Consolidation Loan. This new, consolidated loan would then be eligible for public-service loan forgiveness. Keep in mind that any loan payments made before this consolidation won’t count toward the 120 payment minimum. Only payments made to the new Direct Consolidation Loan will be considered. 

According to the Federal Student Aid website, PSLF-qualifying jobs include:

“Any employment with a federal, state, or local government agency, entity, or organization or a not-for-profit organization that has been designated as tax-exempt by the Internal Revenue Service (IRS) under Section 501(c)(3) of the Internal Revenue Code (IRC)."

Click here for more information.

 

RELATED TERMS
  1. Direct Consolidation Loan

    A loan that combines two or more federal education loans into ...
  2. Perkins Loan

    A loan program that provides low-interest student loans to undergraduate ...
  3. Education Loan

    Money borrowed to finance education or school related expenses. ...
  4. Standing Loan

    A type of loan where payments are made of interest only. Repayment ...
  5. Refinance

    1. When a business or person revises a payment schedule for repaying ...
  6. Call Loan

    A loan provided to a brokerage firm and used to finance margin ...
Related Articles
  1. Credit & Loans

    College Loans: Private vs. Federal

    Not all student loans are the same. Know what you're getting into before signing on the dotted line.
  2. Credit & Loans

    Federal Direct Loans

    These are the most popular type of federal student loan. Read this guide to the types you can get, how much you can borrow and repayment options.
  3. Credit & Loans

    Time To Consolidate Your Student Loans?

    Use these strategies to decide whether consolidating your student loans makes sense for you – and what to do next if it does.
  4. Credit & Loans

    Don’t Fail Student Loan Debt 101

    Don't be a statistic! According to a recent study, six in 10 Millennials don’t know what they owe or what to do with student loans after they graduate.
  5. Retirement

    Student Loan Debt: Is Consolidation The Answer?

    Consolidating your student loans offers convenience, but there are drawbacks.
  6. Economics

    An Introduction to Government Loans

    Government loans further policymakers' efforts to create positive social outcomes by offering timely access to capital for qualified candidates.
  7. Credit & Loans

    Keeping Your Student Loans In Check

    For this year's grads, now is the time to think about the future, but it's also time to think about repaying those student loans.
  8. Credit & Loans

    Student Loan Debt: Is Consolidation The Answer?

    Consolidating student loans entails taking out a new loan to pay off existing loans. It sounds simple, but there are a few things to keep in mind.
  9. Credit & Loans

    Cash And Student Loan Forgiveness: The Perfect First Job

    Pesky student loans can make your first few years (even decades) of employment difficult. These organizations can make all the difference.
  10. Credit & Loans

    Parents: Beware of Taking Out a Direct PLUS Loan

    Direct PLUS loans are heavily advertised to parents who want to help support the financial costs of their child's education, but are they a good idea?
RELATED FAQS
  1. Student loans, federal and private: what's the difference?

    Learn about the differences between federal and private student loans, and discover the types of federal funding available ... Read Answer >>
  2. Why are private student loans generally more expensive than federal loans?

    Make the right decision between a federal student loan and a private student loan when looking for financial aid for your ... Read Answer >>
  3. Are Sallie Mae loans considered federal loans?

    Identify the differences between federal and private student loans, explore the qualities of each type of loan, and find ... Read Answer >>
  4. Should I continue to pursue a career in the public sector or change to the private ...

    I am currently in heavy student loans and currently unemployed. Most recently, I was employed in the P... Read Answer >>
  5. Can Sallie Mae loans be consolidated?

    Understand whether Sallie Mae loans can be consolidated. Learn about additional options that can lower the monthly payments ... Read Answer >>
  6. What are the differences between delinquency and default?

    Find out more about loan delinquency, loan default, and the difference between a loan borrower defaulting and being delinquent ... Read Answer >>
Hot Definitions
  1. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  2. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  3. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
  4. Weighted Average Cost Of Capital - WACC

    Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is ...
  5. Basis Point (BPS)

    A unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly ...
  6. Sharing Economy

    An economic model in which individuals are able to borrow or rent assets owned by someone else.
Trading Center