Student debt has become a major problem in the U.S concerning more than 40 million people. Every student accrues debt hoping that better education will lead to a better future. However, most of them struggle to meet the loan obligations after graduation. Whether it is a private or federal loan, debt repayment can take several years and require constant income inflow.
Yet, luckily, there are some options to ease the debt repayment process. Programs exist that can help borrowers to reduce or cancel the debt obligations. These opportunities are mostly available to federal borrowers, while private debtors can access a few options.
This guide will introduce 12 ways to cancel student loan debt, covering different types of qualifications.
Want to Cancel Student Loan Debt? Read This Before
Before discussing your options for federal and private loans, keep in mind that finding the right program is not a piece of cake. While getting familiar with the options, you will notice that each of them has specific eligibility conditions, benefits, and drawbacks. As much as ‘debt cancellation’ sounds attractive, sometimes repaying the debt can even be more effective than applying to forgiveness programs.
Borrowers need to be well aware of the accessible options and thoroughly analyze their finances before selecting a program to apply to. We understand that many borrowers do not have the necessary financial backgrounds or even enough time to think twice about forgiveness alternatives.
Therefore, it is highly recommended that the borrowers get expert help in this demanding path. Like those we work with in Student Loans Resolved; our debt specialists have years of experience. They have resolved the student loan problems of hundreds of similar borrowers. Their expertise is what allows them to choose the most suitable program for you. Before wasting your time on wrong options, make sure you get expert advice.
Federal Debt Cancellation Programs
We will start our guide by describing solutions to eliminate the federal debt. As mentioned, if you have a federal loan, you have multiple cancellation options to consider. Some of them require a mandatory service in return, while others depend on specific conditions. It is also possible to get rid of the debt if the school misled you.
Besides these programs that can cancel student loan debt fully or partially, some opportunities can ease the repayment process. These alternatives will not forgive any debt, but at least borrowers will get more favorable terms to pay back the debt.
1. Public Service Loan Forgiveness
When it comes to federal loan cancellation, the Public Service Loan Forgiveness is the star of the show. There are several forgiveness programs offered for federal borrowers, but the PSLF is one of the most suitable ones for many borrowers.
In general, it takes around 10 years to access this debt cancellation option. The process is simple; once the debtor makes 120 payments, the rest of the debt is eliminated. However, there are still extensive eligibility conditions. If you want to cancel student loan debt through this program, make sure you get familiar with the eligibility criteria beforehand.
Eligibility Requirements for cancelling student loan debt
One of the main reasons for failure while applying for forgiveness is wrong documentation and inability to meet eligibility criteria. Therefore, applicants should be cautious about their qualifications. Even if they attempt to meet the required conditions, wrong documentation or lack of documents can be a barrier to cancel student loan debt.
Sure, such great benefit that the PSLF brings is not achieved easily. The borrowers need to focus on many different factors regarding their work conditions, workplace, loan type, etc.
Some of the general eligibility conditions are straightforward to understand. For example, it should be no surprise that the borrowers need to work in the public sector or in a non-profit organization to cancel student loan debt through the PSLF.
However, other conditions need more elaboration. In general, the debtor should serve full-time, own a direct loan and repay it 120 times under a qualifying repayment plan. Besides, the 120 payments have their own eligibility criteria. In the following sections, we will explain more details about these requirements.
Any government, state, tribal, or local organization qualifies for this program. Besides, borrowers can work in a not-for-profit, tax-exempt organization. The service that the borrower provides has its own conditions. First, it should be full time. Full time can be defined as a minimum of 30 hours weekly. Many organizations have their own full-time service determination methods, but keep in mind that working less than 30 hours per week is not acceptable.
The good news is that even debtors with part-time work can apply this forgiveness opportunity. However, in this case, they need to have several half-time positions so that the total of work hours can sum up to a minimum of 30 hours.
Additionally, it is important to note that some type of work in a qualifying organization might not be counted for the program. For example, in religious organizations, time spent worshipping might not be a part of the minimum 30 hours work requirement.
The debt that the borrower owes also defines whether he/she is eligible to cancel a student loan or not. As mentioned before, only federal direct loans qualify for this program. Unfortunately, if you have FFEL, Perkins, or private loans, you cannot apply to the PSLF. But do not get disappointed; we will still talk about many other programs to cancel student loan debt.
Some borrowers consolidate their multiple loans into one to make the repayment process easier. Keep in mind that if you decide to consolidate, your points acquired for PSLF- qualifying payments made- would be lost. In other words, only the payments after consolidation will be counted.
Under the debt categorization, there are specific conditions about the payment, too. All borrowers have to make 120 payments to qualify for forgiveness. As a result, the remaining debt will be forgiven. The advantage of this condition is that the payments do not need to be consecutive. For example, if you have made 10 payments before losing your job, you will not lose the 10 credits gained after finding a new position and continuing to make the process. Another implication of this requirement is that the borrowers will receive the forgiveness in more than 10 years, in case there were periods of non-qualifying payments.
Another simple payment requirement is that it should be made in full the amount shown in the bill, on time and after October 2007. On-time means the borrower has a maximum of 15 days after the due date. Again, while repaying the debt, the borrower should meet other categories of eligibility criteria, such as having a qualifying employer and work hours.
Please, note that you cannot earn 120 points for payments faster by paying more. Imagine you made 3-month worth of payments ahead. In this case, you earn 3 credits for the progress toward 120. But the only advantage this approach brings is that you will not be required to repay the debt for the next two months.
4. Qualifying Repayment Plan
As you might be aware, federal student loan borrowers have access to multiple repayment plans. However, only Income-driven repayment plans qualify for the PSLF.
Income-driven repayment plans are usually more affordable because the monthly amounts depend on the borrowers’ income level. Hence, the repayment amount is mostly more suitable for the debtors.
Cancel Student Loan Debt Wisely
Before deciding to change the repayment plan, the borrowers must carefully analyze their finances. Another repayment plan targets 10 years to pay out the debt- The Standard Repayment plan. When moving to an Income-driven repayment plan, the monthly amount can increase if the income is high. In this case, it might not be beneficial for such borrowers to move from Standard to Income-driven plans.
Besides, you need to evaluate the pros and cons of the forgiveness options you can access. On the bright side, the PSLF can be accessible to many borrowers working in the public sector. It also covers half-time employees, and the forgiven amount is not tax-deductible. However, as mentioned before, if consolidating loans or having a standard-repayment plan, the PSLF might not be desirable.
While collecting points to get eligible for the program, borrowers need to ensure that they are on the right track. Therefore, it is advisable to submit the PSLF form. In this case, the officials will check the information and notify the borrowers about their qualifying payments.
Borrowers can submit this form annually or when they change the employers. If they do not provide this documentation on time, they will be required to submit Employer Certification for every workplace at the time of application.
Once 120 payments are made for the PSLF, it is time to submit the form again to receive the forgiveness benefit. Even at the time of application, the borrower still needs to work for a qualifying employer. The applications and PSLF forms need to be sent to FedLoan Servicing- the loan servicer that is dealing with the Public Service Loan Forgiveness program.
Refund is Possible
One of the frequently asked questions about the PSLF is whether the borrower can receive a refund for overpayment or not. Luckily, the refund is possible if the borrower made payments after the required 120th.
Once the borrower submits the PSLF form, the officials check eligibility for the forgiveness program. If the application is successful, they will cancel student loan debt, including the remaining balance and interest. Additionally, overpayments will be refunded to the borrower.
What if I am Rejected?
As the PSLF has many requirements, it is quite possible that the borrower will fail one or a few of them. In this case, the officials will notify the borrowers about failure reasons. The good news is that if there is a lack of qualifying payments due to a wrong repayment plan, you can still benefit from this program.
Such change is covered in the Temporary Expanded Public Service Loan Forgiveness option. Several conditions make the borrowers eligible for this program. First, the only reason for rejection should be some or all payments made with the wrong repayment plan – not Income-driven plans. Besides, the borrowers should have a minimum of 10 years of full-time experience from a qualifying employer. If the debtor’s 12 months prior payment and the last payment is as much as the amount should have been paid under Income-driven plans, the borrower will qualify.
Keep in mind that the TEPSLF is a temporary program; it depends on the number of available funds and is based on the “first come-first serve” principle. Therefore, borrowers need to act fast and cancel student loan debt with this program before it is out of funds.
What to Expect in 2021 for PSLF?
The PSLF has long been the favorite option of many borrowers to cancel student loan debt. However, sometimes, it proved to be inefficient and overly complex for the debtors to understand and benefit from.
Therefore, one of the areas that the Biden administration focuses on in its student loan plan is the PSLF. The administration aims to simplify the program. Instead of waiting for a minimum of 10 years, the plan suggests moving to more prompt solutions. The borrowers can access $10,000 forgiveness under the changes if they serve a year. Therefore, in a five years limited period, the borrower will get $50,000 forgiveness.
However, this change is only a proposal. Once Congress approves the change, it will be put into law.
2. Teacher Loan Forgiveness
Another great way to cancel student loan debt is Teacher Loan Forgiveness. If you work as a teacher and have federal loans, you can consider this program to eliminate some of your debt. This program allows full-time teachers serving five consecutive years to get either $17,500 or $5,000 forgiveness for their direct and FFEL loans.
Teacher Loan Forgiveness is more straightforward compared to Public Service Loan Forgiveness. Its conditions involve being a full-time teacher with five consecutive years of service in a qualifying place after 1997-98 study years. The qualifying workplace is a low-income school or other educational institution.
Borrowers can access the list of qualifying organizations to check if their workplace is eligible for this forgiveness program. Besides, the loans should be made before the service period ends.
As mentioned before, teachers can get either $17,500 or $5,000 forgiveness. Even if they have multiple loans, the combined benefit cannot be higher. Only highly-qualified teachers with bachelor’s degrees and certification and working in mathematics, science, or special education areas can get a $17,500 benefit. For more information about highly-qualified teachers, you need to check the official website or contact our experts.
The PSLF and TLF
It is possible to benefit from both the Teacher Loan Forgiveness and Public Service Loan Forgiveness to cancel student loan debt. However, you need to serve each of them separately. In other words, while working for 5 consecutive years for the TLF, your payments will not count for the PSLF. Once you receive the benefit, you need to start making 120 payments toward the PSLF.
3. Perkins Loan Forgiveness/Cancellation
If you have Perkins loans, you can qualify for neither the PSLF nor the Teacher Loan Forgiveness program. However, there is a special program for teachers having Perkins Loans.
Compared to Teacher Loan Forgiveness, it can even bring higher benefits. It is possible to get 100% forgiveness under the Perkins Loan Cancellation program.
Eligibility Criteria for Perkins Loan Forgiveness
Borrowers working in public or not-for-a-profit organizations, or more specifically, elementary and secondary schools, can apply to this program to cancel student loan debt. However, additional requirements also exist. The borrower needs to satisfy one of these conditions, too:
- Working in schools serving low-income students
- Being a special education teacher dealing with infants or disabled children
- Teaching mathematics, science, foreign languages, or any other field with a shortage of teachers
Keep in mind that postsecondary schools do not qualify for this program. The good news is you do not need to have a certificate or license. But in return, the teacher should be directly employed as full-time staff.
Administrative positions, including supervisors or researchers, will not be eligible for this forgiveness option. Additionally, it is possible to work part-time in multiple educational institutions to meet the full-time criteria, like the PSLF.
Unlike the Teacher Loan Forgiveness, Perkins cancellation grants some benefits for every service year, rather than a lump-sum amount at the end of 5 years.
For the first and second years of service, the borrowers will receive a 15% discharge. For the following two years, the cancellation percentage is 20%. Lastly, during the fifth year, 30% of the loan is forgiven. Note that these percentages include the interest accrued for the year.
Who Else Can Benefit from the PLC?
Perkins Loan Cancellation does not only cover teachers. Other professions like military service, nurse, law officer, firefighter, librarians with master’s degree, etc., can qualify for this program if they also meet other eligibility conditions.
4. Perkins Loan Discharge
We will discuss many discharge programs after forgiveness options. It is still necessary to present Perkins Loan Discharge in this section as its name is similar to the Perkins Loan Forgiveness program. The difference between these programs is that the discharge does not require a service in return.
Perkins loans can be eliminated- or discharged- if the borrower files bankruptcy, dies, gets disabled due to military service, or becomes total and permanently disabled. Spouses of victims of 9/11 events can also eliminate their Perkins loans by taking advantage of this program.
Additionally, if your school closes while you are enrolled or shortly after withdrawal, your Perkins loans will be discharged.
5. Borrower’s Defense to Repayment
Now, it is time for one of the most asked programs- Borrower’s Defense to Repayment. This program is special in multiple aspects. There is no other alternative that can serve the same purpose. Borrower’s Defense to Repayment cancels student loan debt accumulated as a result of schools’ misleading actions. In other words, if you enrolled in an educational institution as if you were influenced by lies, misleading info, and incorrect data, you can reject making payments.
In some cases, the universities present false job replacement rates; the enrollment advisers lie about the true cost of education or the quality of curriculum only to attract the students. In this case, the reasoning is that if you are not going to benefit from the education, you should not pay the debt accumulated for it.
It should be noted that this program can be accessible if the borrower faced fraud only from the school. Most borrowers are interested in whether they can apply to BDR if the loan servicer misled them. No, you cannot file an application against the loan servicer’s actions through the Borrower’s Defense to Repayment.
First, keep in mind that this program is only beneficial to eliminate direct loans. If you have FFEL, Perkins, or private loans, check other options presented.
The most important criteria are to prove that the school engaged in misconduct that is illegal and unethical. Even if the case is true, you will not receive forgiveness if you cannot prove it successfully. Hence, you need to gather all evidence that you can access. For example, borrowers can put the documents reflecting email communications with the enrollment advisers to prove their false claims. Besides, advertisement brochures with misleading information can be a reliable document.
While applying to the forgiveness program, you will be required to submit information like contact details, education background, and some questions about the debt. Next, you should explain the case, what happened and why you think that you were a victim of school fraud. You also need to back up your arguments with documents attached to the application.
Please, note that you should explain to the Education Department that if the school did not trick you, you would not have agreed to take on debt.
What to Expect in 2021 for Borrower’s Defense?
We have discussed the changes proposed for the PSLF previously. Another area that the Biden administration focuses on is the Borrower’s Defense. This program seems fair and useful for the borrowers.
However, during the Trump administration, the program lost its attractiveness. The Education Department expressed its dissatisfaction with this opportunity because they thought it was a “free money” option for the student borrowers. Hence, the application review process was delayed.
Even after the court ruled resuming the process, the Education Department rejected many applications. Currently, the Biden Administration proposes reviving the process. We hope that more people will be able to get full or partial forgiveness under this fair program soon.
Forgiveness options are great to cancel the debt, but they usually require action in return. For instance, the Public Service Loan Forgiveness requires working full-time while progressing toward 120 payments.
In comparison, the discharge options do not require a service in return. There should be specific conditions to make discharge possible for the loans. These conditions are not controlled by the borrower; rather, they are given. In this section, we will look at some cases when borrowers can get rid of their debt through federal loan discharge programs.
6. Closed School Discharge
If the school closes while studying, the borrower will not be able to get a degree. Hence, it makes perfect sense that, in this case, the borrower should not repay the debt. In general, the discharge will be possible if you:
- Study during closure
- Have withdrawn within 120 days prior to the closure (before July 2020)
- Have withdrawn within 180 days prior to the closure (after July 2020)
Borrowers eligible for this opportunity usually receive immediate notice about discharge from the Secretary. In other cases, debtors can contact their loan servicers to take advantage of this opportunity.
7. Total and Permanent Disability Discharge
If a borrower has a total and permanent disability, he/she does not need to repay the debt. However, before stopping payments, they need to prove the disability. For this purpose, they can get a supporting document from the Veteran Affairs, Social Security Administration, or the Physician.
8. Death Discharge
If the person who owes the debt dies, the debt should be discharged. In this case, a family member or a representative should provide a proof of death document to cancel student loan debt. Borrowers with Parent PLUS loans will eliminate the debt if the parent or the student dies.
9. Bankruptcy Discharge
Some borrowers have no other option than to file bankruptcy. We also recommend you file bankruptcy if you have already exhausted all other options. The reason is that student loan bankruptcy is extremely hard to achieve. The borrower should prove that he/she will not survive if continuing repaying the debt. Besides, the negative effects stay on the credit reports for as long as 7 to 10 years.
10. False Certification Discharge
This discharge opportunity will be accessible if, again, the school engaged in fraudulent activities. If the school-certified the loan when the student was unable to benefit, had disqualifying conditions, or the school used unauthorized signature, the debt should be discharged. However, first, the borrower should fill the application form and prove the case.
11. Unpaid Refund Discharge
When a borrower withdraws, the school might be obliged to return some of the loan funds. However, if the school does not refund this money, the borrower can apply for discharge. In this case, the amount that should have been returned will be used to forgive that much debt. Only direct and FFEL loans will qualify.
12. Private Debt Cancellation Programs
As mentioned before, private loan borrowers are not as privileged as federal borrowers when it comes to cancellation programs. Many lenders do not provide any discharge or forgiveness options to eliminate the debt.
If you face financial hardship and are unable to pay the loans, it is advisable to contact your lender first. By explaining the difficulty you face and expressing good faith, the lender can be convinced to help the borrower. In most cases, the creditors will provide the forbearance or deferment period. During this period, the debtors do not need to make payments.
However, some lenders might provide discharge in specific situations. Discharge due to death or total and permanent disability can be accessible to private borrowers. Yet, again, the borrower should contact the lender to learn about the available options.
What Other Options are Available?
Even if private borrowers are most likely unable to cancel student loan debt, they can still find ways to make the repayment process easier. For example, student loan refinancing is one of the most beneficial ways to reduce debt obligations. It is possible to access lower interest rates and monthly payments through refinancing. As a result, the debtors will be better able to repay the debt on time.
Another solution can be getting help from debt settlement companies. Such companies create a plan for borrowers to save some money every month. As a result, in a short period, the borrower accumulates a considerable amount of funds.
Next, the debt settlement company negotiates with the lender to settle the lump-sum amount that the borrower saved. Usually, this amount is lower than the original student debt. However, the lender might agree to a lower amount as it will be a one-time payment rather than a small payment for a long period.
Consider Getting Expert Help
While you get familiar with your options, you probably noticed that each program is unique. They all require different conditions and have their own benefits or disadvantages. It is extremely important to make the right selection from the very beginning. Otherwise, you might end up wasting years for a forgiveness option that you are not even eligible for.
If you want to cancel student loan debt, the best option is to get expert help. Experts, like those in Student Loans Resolved, are well aware of the industry practices. They can analyze the finances and select the most beneficial option for the borrowers. Besides, they will be by your side through the whole application process. Whenever you need help, the debt specialists will be there to lend a hand.