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. Federal Direct Loan Program

    A program that provides low-interest loans to postsecondary students ...
  2. Education Loan

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

    A type of loan where payments are made of interest only. Repayment ...
  4. Term Loan

    A loan from a bank for a specific amount that has a specified ...
  5. Refinance

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

    The result of an agreement between a borrower and a lender to ...
Related Articles
  1. Personal Finance

    Benefits of Federal Direct Loans

    Federal Direct Loans are the most popular federal student loans. This list of benefits will explain why.
  2. Personal Finance

    College Loans: Private vs. Federal

    Not all student loans are the same. Know what you're getting into before signing on the dotted line.
  3. Personal Finance

    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.
  4. Personal Finance

    Federal Perkins Loan vs. Federal Direct Loan

    If you qualify for both of these student loans – a Direct Loan and a Perkins – which should you try to get? It depends on your income and education level.
  5. Personal Finance

    Student Loans: Federal Loan Consolidation

    Federal loan consolidation is a helpful tool for converting an unmanageable payment into a manageable payment by combining multiple semester loans into one loan and extending your repayment schedule. ...
  6. Personal Finance

    Top Student Loan Providers

    Many banks and institutions offer student loans, but some offer better deals than others. Read this list of top student loan providers before you borrow.
  7. Personal Finance

    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.
  8. Managing Wealth

    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?
  9. Personal Finance

    Fund Your Schooling with PLUS Loans

    Find out what they and are whether you're eligible to apply for these no-maximum loans.
  10. Managing Wealth

    Student Loan Refinancing: The Pros and Cons

    To refinance your student loan or not? Here are the top pros and cons to consider.
RELATED FAQS
  1. Do I have to pay taxes on the amount of my Federal Direct Loan Forgiveness?

    I have been granted student loan forgiveness on my daughter's $18K loan. I have exceeded the 120 loan repayment requirement, ... Read Answer >>
  2. 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 >>
  3. How would I qualify for student loan forgiveness?

    I am unemployed because of my illness, and I have yet to graduate also because of my illness. Read Answer >>
  4. Should I consolidate my student loans?

    I just graduated and do not have a job yet. I'm applying for an income driven loan payment plan.  ... Read Answer >>
  5. Can my direct unsubsidized loans be forgiven or canceled?

    I am a cancer center director who just finished a BS in Healthcare Administration. I also work as radi... Read Answer >>
  6. Am I eligible for any loan forgiveness programs?

    I have less than $10,000 in federal student loans. I work as a nurse at a local health department. When I switched positions ... Read Answer >>
Trading Center