- Student loan cancellation includes student loan forgiveness and student loan discharge.
- Student loan forgiveness cancels the debt in exchange for service and student loan discharge cancels the debt because of the borrower’s circumstances.
- Both forgiveness and discharge provide a permanent end to the repayment obligation, while deferments and forbearances are a temporary suspension of the repayment obligation.
- Income-driven repayment provides another form of financial relief that cancels the remaining debt after 240 or 300 payments, depending on the type of income-driven repayment plan.
If you find yourself unable to pay back your student loans due to special circumstances, or if you plan on going into public service, the federal government has programs that can cancel or put the need to pay back your loans on hold. But, as you might guess, the differences in the programs, and how you qualify, can be complicated.
Student loan cancellation ends the repayment obligation for a student loan. The borrower is no longer required to repay the debt.
There are two types of student loan cancellation: student loan forgiveness and student loan discharge.
What is the difference between forgiveness and discharge? How does student loan cancellation differ from student loan deferments and forbearance?
Are these options available for private student loans, or just federal student loans? What about parent loans?
Read on to learn more.
Inside this article
Student loan forgiveness
Student loan forgiveness cancels student loan debt in exchange for service, such as working or volunteering in a particular occupation or national need area. Student loan forgiveness enables a borrower to pursue an occupation despite low pay and high debt.
Public Service Loan Forgiveness: This forgives the remaining debt after you make 120 qualifying payments while working full-time in a public service job, such as working for the government or a 501(c)(3) charitable organization.
Teacher Loan Forgiveness: This forgives $5,000 or $17,500 in Federal Stafford Loans if you teach for five years in a national need area, such as a community that serves low-income students.
Loan Forgiveness for Health Professionals: Programs include the Nurse Corps Loan Repayment Program and Veterinary Medicine Loan Repayment Program.
Loan Forgiveness for Public Interest Lawyers: Programs include public interest law sponsored by the ABA and the John R. Justice Student Loan Repayment Program at the U.S. Department of Justice.
Loan Forgiveness for Employees of Government Agencies: This is not a loan repayment assistance program (LRAP). Federal agencies can provide up to $60,000 in total loan forgiveness ($10,000 per calendar year). You must commit to working for the government agency for at least three years. Members of Congress and political appointees are not eligible. The program is especially popular among employees of the Department of Defense, Department of Justice, Department of State, SEC, VA and HHS.
Loan Repayment for Military Service: An LRAP, this provides up to $65,000 instead of Montgomery G.I. Bill benefits, if the servicemember scores at least 50 on the Armed Services Vocational Aptitude Battery (ASVAB).
In addition to these forgiveness programs, some employers provide LRAPs for their employees, typically paying $100 a month toward their student loans as a recruiting and retention benefit.
Income-driven repayment plans for federal student loans offer loan forgiveness after 240 or 300 payments (20 or 25 years), depending on the repayment plan.
You can also earn education awards, which can be used to pay down federal student loan debt, through volunteer service through AmeriCorps and the Peace Corps. These lump sum payments can also count toward public service loan forgiveness.
A few cities and states offer student loan forgiveness to encourage borrowers to relocate. Examples include Kansas, Maine, Maryland (first-time homebuyers of state-owned properties), Michigan (St. Clair County), New York (must operate a New York farm for five years), North Dakota, Ohio (Hamilton and Newburgh Heights) and Rhode Island.
Student loan forgiveness is generally available for federal student loans but not private student loans.
There are two types of student loan forgiveness.
Up-front loan forgiveness cancels a portion of the debt each year as the borrower performs the qualifying service. The borrower may receive partial loan forgiveness even if they don’t complete all of the years of service.
Back-end loan forgiveness cancels all or part of the remaining debt after the borrower performs a number of years of service. The loan forgiveness is all or nothing. If the borrower doesn’t complete the required number of years of service, they get no loan forgiveness.
Student loan discharge
Student loan discharge cancels student loan debt based on the borrower’s circumstances, such as when the borrower is unable to repay the debt or the borrower disavows or repudiates the debt.
Examples of federal student loan discharges include:
Total and permanent disability discharge
Bankruptcy discharge (very rare)
Closed school discharge
False certification discharge (includes instances when someone falsely authorizes the loan without the student’s consent, such as due to identity theft, unauthorized signature and unauthorized payment discharges)
Unpaid refund discharge (when you withdraw from school but your school fails to refund your federal student loan to the government)
Borrower defense to repayment discharge (when a college violated state law in making a student loan)
For private student loans:
Some private student loans offer death and disability discharges similar to the ones available for federal student loans. Some don’t. Even when the lender doesn’t offer a death or disability discharge, the borrower can ask the lender for a compassionate review.
The lender is more likely to cancel the debt when the borrower is in a “you can’t squeeze blood from a stone” situation or if the borrower is a first responder or member of the U.S. Armed Forces who was killed in action.
Student loan deferments and forbearances
Student loan deferments and forbearances are different from student loan cancellation. Deferments and forbearances are a temporary suspension of the repayment obligation, while loan cancellation is a permanent end to the repayment obligation.
For federal student loans, during a deferment, the government pays the interest on subsidized federal student loans, but not on unsubsidized loans.
During a forbearance, the federal government does not pay the interest on subsidized or unsubsidized loans.
Any unpaid interest will be capitalized by adding it to the principal loan balance at the end of the deferment or forbearance period.
Examples of federal student loan deferments include those for:
Active cancer treatment
The federal government pays the interest on both subsidized and unsubsidized federal student loans during the cancer deferment.
If you are experiencing financial distress, are unemployed or on medical leave, you may be able to qualify for a general forbearance. For private student loans, general forbearances are provided in two- to three-month increments generally with a maximum duration of one year.
For federal student loans, each deferment and forbearance is limited to a maximum of three years. (Borrowers can reset the clock by consolidating their loans. A consolidation loan is a new loan, which is eligible for its own set of deferments and forbearances.)
For private student loans:
Private student loans offer just forbearances, but may use the term deferment as a synonym for forbearances.
For private student loans, forbearances are typically limited to a maximum of one year in total duration.
Private student loans may also offer partial forbearances, which require interest-only payments. This prevents capitalization of interest, so the loan balance remains unchanged.
Income-driven repayment provides financial relief by basing the monthly student loan payment on your income, as opposed to the amount you owe. The remaining debt is forgiven after you make a specified number of payments.
There are four income-driven repayment plans, and the terms for each depend on your discretionary income level:
|Repayment Plan||Payment Amount||Repayment Term|
|Income-Contingent Repayment (ICR)||20% of income||25 years|
|Income-Based Repayment (IBR)||15% of income||20 years|
|Pay-As-You-Earn Repayment (PAYE)||10% of income||20 years|
|Revised Pay-As-You-Earn Repayment (REPAYE)||10% of income||20 or 25 years, depending on whether you have undergraduate loans only or also graduate loans|
These repayment plans can provide a reduced monthly loan payment if the borrower demonstrates a partial financial hardship.
The monthly payment may even be zero, like a deferment or forbearance, if the borrower’s income is less than 100% of the poverty line for ICR and less than 150% of the poverty line for IBR, PAYE and REPAYE.
The federal government may even pay all or part of the accrued but unpaid interest, depending on the repayment plan, the type of loan and whether the borrower is in the first three years of the repayment plan. Here’s how interest is handled for each type of repayment plan:
ICR: The federal government does not pay any of the unpaid interest.
IBR: The federal government pays 100% of the unpaid interest on subsidized loans for the first three years.
PAYE: The federal government pays 100% of the unpaid interest on subsidized loans for the first three years.
REPAYE: The federal government pays 100% of the unpaid interest on subsidized loans and 50% of the unpaid interest on unsubsidized loans for the first three years. The federal government pays 50% of the unpaid interest on subsidized and unsubsidized loans after the first three years.