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. Seniors: Before You Co-sign That Student ...
    Personal Finance

    Seniors: Before You Co-sign That Student ...

  2. Debt Forgiveness: How to Get Out of ...
    Credit & Loans

    Debt Forgiveness: How to Get Out of ...

  3. Who is eligible for student loan forgiveness?
    Personal Finance

    Who is eligible for student loan forgiveness?

  4. What New Student Loan Repayment Options ...
    Credit & Loans

    What New Student Loan Repayment Options ...

comments powered by Disqus
Hot Definitions
  1. Elasticity

    A measure of a variable's sensitivity to a change in another variable. In economics, elasticity refers the degree to which ...
  2. Tangible Common Equity - TCE

    A measure of a company's capital, which is used to evaluate a financial institution's ability to deal with potential losses. ...
  3. Yield To Maturity (YTM)

    The rate of return anticipated on a bond if held until the maturity date. YTM is considered a long-term bond yield expressed ...
  4. Net Present Value Of Growth Opportunities - NPVGO

    A calculation of the net present value of all future cash flows involved with an additional acquisition, or potential acquisition. ...
  5. Gresham's Law

    A monetary principle stating that "bad money drives out good." In currency valuation, Gresham's Law states that if a new ...
  6. Limit-On-Open Order - LOO

    A type of limit order to buy or sell shares at the market open if the market price meets the limit condition. This type of ...
Trading Center