Rights to Cancel Your Federal Student Loan
In March 2020, the U.S. Department of Education began providing temporary emergency relief related to the COVID-19 crisis for borrowers with Direct Loans or any other federal student loans owned by the Department of Education. This meant that borrowers with commercially-held Federal Family Education Loans (FFEL) and school-held Perkins Loans did not get relief on those loans under this action.
That relief was subsequently extended several times, first by Congress under the March 27, 2020 Coronavirus Aid, Relief, and Economic Security Act (CARES Act), and then through a series of executive and administrative actions. The relief was extended through at least September 30, 2021, based on executive action taken on January 20, 2021.
The relief provided for covered loans included a suspension of loan payments, a ceasing of collections on defaulted loans (including stopping wage garnishment and seizures of tax refunds and Social Security benefits), and a temporary 0% interest rate (meaning interest was not being charged on covered loans during the relief period). For borrowers enrolled in income-driven repayment plans or working towards Public Service Loan Forgiveness, the suspended payments count toward the requirement to make a certain number of monthly payments to receive forgiveness—not making payments during this relief period will not delay eventual forgiveness under those programs. Similarly, for borrowers in a rehabilitation agreement, the suspended payments count toward the required nine payments needed to rehabilitate a loan.
The dates and terms of COVID-19 emergency relief may change; for updates and more information about the relief, see https://studentaid.gov/announcements-events/coronavirus.
If there were serious problems with the school or if you are disabled (or have passed away), you may be able to apply to have your federal loan discharged—that is cancelled—by submitting paperwork to your loan servicer, debt collector, or directly to the Department of Education. This is an administrative process. Ask whoever is holding your loan for the appropriate discharge request form. The forms are also available at https://studentaid.gov. Defaulting on your loan does not prevent you from applying for cancellation. Be prepared to meet resistance and delay, insist on your rights, and consider seeking assistance from an attorney. You may also have rights to cancel the debt by filing bankruptcy.
A successful administrative discharge may completely wipe out the current loan, and in some cases may also allow you to get back money you already paid on the loan and any money that was taken from you through tax refund intercepts, wage garnishment, or other collection methods. In some cases, the government is also required to delete negative references on your credit report.
This section summarizes your rights to cancel your loan. More information is available from the https://studentaid.gov, from NCLC at www.studentloanborrowerassistance.org, and from NCLC’s Student Loan Law (6th ed. 2019), a detailed legal treatise covering student loan borrower rights, available at www.nclc.org/bookstore.
Closed School Discharge. If your school closed while you were enrolled or within 120 days of your leaving the school, and you did not complete your school program, your loans can be discharged. In a few cases, the 120-day period may be extended. Borrowers who first take out loans on or after July 2020 are eligible for discharge if their school closed within 180 days of their leaving.
Unpaid Refund Discharge. You are eligible to discharge all or a portion of a loan if you left school and the school failed to return any loan amounts to the servicer that it was required to refund.
Borrower Defense to Repayment Discharge. You may seek to discharge all or a portion of a loan if your school lied to you or otherwise misled you in convincing you to enroll, stay enrolled, or take out loans, or in some cases engaged in other misconduct violating state law. The rules for this discharge program have changed several times in recent years and differ depending on when your loans were disbursed, and potentially depending on which types of loans you have. Eligibility for this discharge may also end a certain number of years after leaving school, so it is important to act quickly if seeking this discharge. For more information on the particular standards applicable to your loans and how to apply for discharge, consult www.studentloanborrowerassistance.org, https://studentaid.gov, or NCLC’s Student Loan Law (6th ed. 2019), available at www.nclc.org/bookstore.
False Certification Discharge. A false certification discharge application form is available if any of the following happened to you (or to the student, if you’re a Parent PLUS borrower):
- ● At the time of enrollment, state law disqualified you from getting a job in the occupation for which you were being trained (for example, you were enrolled in a truck driving program even though you had a physical disability that prevented you from obtaining a truck-driving license).
- ● You did not have a valid high school diploma or GED when you went to the school, and your school did not ensure that you met the applicable alternative financial aid eligibility criteria (such as through an ability-to-benefit test).
- ● The school forged your name on the loan papers or check endorsements, and you never went to school for the times covered by the forgery.
Disability Discharge. You can discharge your loan if the Department of Veterans Affairs, the Social Security Administration, or your physician certifies that you have a total and permanent disability. Parents with PLUS Loans may apply for discharge based on their own disabilities, not those of their child. If two parents have a PLUS Loan and only one becomes disabled, the other must still repay the loan.
The first step to apply is to notify Nelnet (a company hired by the Department of Education), by calling 888-303-7818 (8 a.m. to 8 p.m. EST, 7 days a week), e-mailing DisabilityInformation@Nelnet.net, or applying at www.disabilitydischarge.com. You can designate a representative to apply on your behalf, but you first must fill out the representative designation form available at www.disabilitydischarge.com. Additional details about applying are available there as well.
Death Discharge. Your family or estate will not have to pay back your student loans if you die. Your estate should submit an original or certified copy of the death certificate to the loan holder. The death of both parents with a PLUS Loan (assuming both took out the loan) is also grounds for the “death discharge,” but not the death of only one of two obligated parents. A parent can also apply for discharge of a PLUS Loan if the student for whom the parent received the loan dies.
Other Grounds for Loan Cancellation or Forgiveness. The Public Service Loan Forgiveness program allows Direct Loan borrowers employed in certain occupations to discharge any remaining loans after making 120 qualifying payments (the equivalent of ten years of payments). Borrowers must be in specific repayment plans for their payments to qualify them for forgiveness in this program. There are also other forgiveness programs related to doing specific types of work. Certain teachers who have taught for five consecutive years are eligible for at least partial loan forgiveness. Perkins Loans may be partially or completely cancelled for borrowers who work in certain fields. Be sure to review the details about all of these programs at https://studentaid.gov.
Bankruptcy. It is very difficult, but not impossible, to discharge a student loan in bankruptcy. You must prove that repaying the loan would cause an “undue hardship” for you and your dependents. Courts generally interpret this to mean that you must have serious financial problems which are likely to persist for reasons beyond your control. It is usually better to ask the bankruptcy court to make this determination at the time of the bankruptcy filing, but if you fail to do so, the bankruptcy court can make that determination later when collection attempts on the student loan are renewed. Learn more about seeking student loan relief in bankruptcy at www.studentloanborrowerassistance.org.