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. Perkins Loan

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

    A loan provided to a brokerage firm and used to finance margin ...
  6. Unsecured Loan

    A loan that is issued and supported only by the borrower's creditworthiness, ...
Related Articles
  1. Financial Advisor

    Student Loan Debt: What Every Borrower Should Know

    If you must take on student debt, you should know the different types of loans and federal programs available well before graduating.
  2. Financial Advisor

    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.
  3. Personal Finance

    Professors: Stop Drowning in Student Loans

    Students aren't the only ones dealing with loans. Professors who borrowed money to get to where they are should consider loan forgiveness programs too.
  4. Personal Finance

    An Introduction to Federal Direct Loans

    Federal Direct Loans provide student funding that a majority of people can easily access. Find out if you qualify.
  5. Financial Advisor

    Student Loan Forgiveness for Teachers

    If you are a teacher and have student loans to repay, you may qualify for a loan forgiveness program.
  6. Personal Finance

    An Introduction To Perkins Loans

    Check out the eligibility and repayment options, and how you can get this loan forgiven.
  7. Personal Finance

    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.
  8. Personal Finance

    Student Loan Asset-Backed Securities: Safe or Subprime?

    Similar to the mortgage-backed securities that caused the 2008 recession, student loan asset-backed securities could lead to the next financial crisis.
  9. Personal Finance

    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. Federal student loan rates: who sets them, why they vary

    Federal student loan rates are set by Congress, not by banks. Learn more about who gets what rate, and how often they get ... Read Answer >>
  3. 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 >>
Trading Center