Student Loan Forgiveness

AAA

DEFINITION of 'Student Loan Forgiveness'

Under certain circumstances, federally backed student loans – such as Direct, Stafford and 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.

INVESTOPEDIA EXPLAINS '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)."

 

 

RELATED TERMS
  1. Sallie Mae - Student Loan Marketing ...

    A publicly traded company that is the largest provider of educational ...
  2. Student Loan Interest Deduction

    A tax deduction for interest paid on higher education loans during ...
  3. Free Application For Federal Student ...

    The form that must be completed in order to qualify for any type ...
  4. Student Debt

    Money owed on a loan taken out to pay for educational expenses. ...
  5. Direct Consolidation Loan

    A loan that combines two or more federal education loans into ...
  6. Post-9/11 GI Bill

    A United States law that provides benefits to military veterans ...
Related Articles
  1. Credit & Loans

    What’s the difference between the two federal student loan programs (FFEL and Direct)?

    Learn about the differences between the two types of government-backed student loan programs: Federal Family Education Loans and Direct Loans.
  2. Credit & Loans

    What special powers does the government have to collect student loans?

    Contact student loan companies before student loans default, as the government has the power to get its money. Prior to default, there are multiple options.
  3. If that loan isn't paid back, you could be on the line for the whole amount, plus penalties.
    Personal Finance

    Seniors: Before You Co-sign That Student Loan

    If that loan isn't paid back, you could be on the line for the whole amount, plus penalties. Ask the 115,000 retirees whose Social Security checks have already been garnished.
  4. With student loan figures soaring, debt-saddled students and graduates are desperate for any strategy that may help them escape some of this burden.
    Credit & Loans

    Debt Forgiveness: How to Get Out of Paying Your Student Loans

    Though many individuals eagerly await the possibility of student loan forgiveness, strict stipulations and changing laws may leave some debt-burdened grads with huge un-paid tabs and reduced ...
  5. Personal Finance

    Who is eligible for student loan forgiveness?

    Your eligibility for student loan forgiveness depends on the type of student loan in question. If you have a federal Stafford loan, you may be able to get all or part of your loan forgiven through ...
  6. Credit & Loans

    What New Student Loan Repayment Options Mean

    American college graduates are facing an increasing amount of student loan debt. There are new rules for repaying that debt. Here's what you need to know.
  7. Personal Finance

    Are Private Student Loans The Next Lending Crisis?

    The CFPB is keeping an eye on the student loan market because it believes it uses the same lending policies as mortgage lenders did during the subprime lending crisis.
  8. Credit & Loans

    Facts You Didn't Know About Private Student Loans

    Take a close look at the characteristics of private student loans before deciding it's the best path to take.
  9. Credit & Loans

    Student Loan Rates To Double

    As of July 1st, be prepared for student loans rates to go up.
  10. Credit & Loans

    Student Loans And How They Will Affect Your Credit

    Here's a breakdown of how taking out student loans will affect your credit score.

You May Also Like

Hot Definitions
  1. Deferred Revenue

    Advance payments or unearned revenue, recorded on the recipient's balance sheet as a liability, until the services have been ...
  2. Multinational Corporation - MNC

    A corporation that has its facilities and other assets in at least one country other than its home country. Such companies ...
  3. SWOT Analysis

    A tool that identifies the strengths, weaknesses, opportunities and threats of an organization. Specifically, SWOT is a basic, ...
  4. Simple Interest

    A quick method of calculating the interest charge on a loan. Simple interest is determined by multiplying the interest rate ...
  5. Special Administrative Region - SAR

    Unique geographical areas with a high degree of autonomy set up by the People's Republic of China. The Special Administrative ...
  6. Annual Percentage Rate - APR

    The annual rate that is charged for borrowing (or made by investing), expressed as a single percentage number that represents ...
Trading Center