Basis and Understanding: School Loan Cancellation

All school loans that are approved under the Higher Education Act title IV can be cancelled or discharged in case of death, total or permanent disability after loan disbursement, false certification, school closure, full-time teaching, military service, bankruptcy etc.

Reasons for school loan cancellation

Death: If the borrower dies, the school loan will be discharged. On a similar note, if a parent received a PLUS loan for his/her child and dies unfortunately, the loan amount will be cancelled totally. To verify a borrower’s death, a death certificate or its copy should be presented in order to get school loan cancellation.

Total or Permanent Disability: If a doctor or medical report certifies that you are totally or permanently disabled as well as you meet certain other requirements during a 3 year conditional discharge period, your loan(s) may be discharged.

False Certification: If you have received a Direct Loan or a Federal Family Education Loan Program on/or after January 1, 1986, you may be eligible for a false certification discharge. Not to forget that you should have received a loan that was certified by an eligible school.

There are four factors which can lead to the condition of false certification of your loan by the school. They are as follow:

1. The school admitted you on the basis of ability to benefit from its training and you did not meet the requirements for admission.
2. The school/school staff signed your name without your authority on the loan application or promissory note.
3. Your physical, mental, or legal status or condition at the time of enrollment was unstable or incorrect, and would legally bar employment in your field of study.
4. You had been a victim of identity theft.

School Closure: You may qualify for school loan cancellation if the school you were enrolled at closed down while you were still enrolled or when you were on leave or 90 days before you left.

Full-time Teaching: Teacher loan forgiveness program grants loan forgiveness of up to $17,500 to those who teach in special schools and up to $5000 to the ones who teach for five years at low-income schools. This forgiveness benefit is available to Direct Loan and Federal Family Education Loan (FFEL) program borrowers with no outstanding balance.

Military Service: If you have been serving the Armed Forces for full-time, you may be eligible for school loan cancellation. Recipients of National Direct Student Loan and Perkins Loan may receive partial cancellation of their loan for their service in the Armed Forces if his/her military service was for a full year in an area of hostilities.

Bankruptcy: You can get rid of your student loan through bankruptcy, if a substantial hardship is shown. However, it is very difficult to prove. If you want your school loan to be discharged on reasons of bankruptcy, then the following three conditions should be proved.

• You are unable to keep up with your payment schedule.
• You are not capable of paying it in future as your financial condition is not good.
• You have made efforts in good faith to pay it, meaning that when you were employed full-time you always paid on time.