Federal student loan borrowers may have their loans discharged outside of bankruptcy under several different programs:
- Borrowers who can show a “Total and Permanent Disability” (TPD) may have their loans discharged. Regulations allow a borrower to request a discharge of their federal loans with a doctor’s certification that they are unable to earn a substantial income as a result of a physical or mental disability. Borrowers can also use a Social Security Disability award letter in lieu of the doctor’s certification. Veterans who have been determined by the VA to be unemployable because of a service-connected disability may also request a discharge of their federal loans. There is a monitoring period following the approval of a TPD discharge with restrictions on how much income can be earned by the borrower during the monitoring period. Debt discharged through a TPD is taxable income and may result in taxes owed on the amount forgiven unless the borrower qualifies for an exclusion for insolvency.
- A “Closed School Discharge” allows borrowers who were attending a school that closes at the time they were enrolled to request that their federal loans be discharged. Borrowers must show they were unable to complete the program at another school or were unable to transfer credits to another school.
- A “False Certification Discharge” allows a borrower to request discharge of loans when a school falsely certifies that the student was eligible for the loan. For example, a student who has failed to graduate from high school or obtain an equivalent certification is not an eligible student. Borrowers may also apply for a false certification discharge in the case of identity theft.
- A “Death Discharge” allows a loan discharge for a parent or surviving spouse if the student borrower dies.
- The “Teacher Loan Forgiveness Program” allows teachers to have up to $17,500 of federal student loans forgiven if they meet certain repayment requirements.
- The “Public Service Loan Forgiveness Program” allows borrowers employed in public service to have the remaining balance of their loans forgiven after they make 120 loan payments. There are restrictions, however, on the type of employer that qualifies for this program and it is only available to borrowers with direct federal loans. Many borrowers with loans guaranteed by a state guaranty agency or non-profit and insured by the federal government have mistakenly believed that their loans are eligible for this program. The regulations state that debt forgiven under the Public Service Loan Forgiveness Program is not taxable income.
- Survivors of or eligible victims of the September 11th attacks in New York City may request discharge of their federal student loans.