Unlike student loan forgiveness, where in many cases specific employment experience and on-time consecutive payments help you qualify, federal student loans may be discharged if you experience certain unfortunate situations beyond your control.
This type of loan cancellation is determined by very specific circumstances and usually include total and permanent disability or a school closing. In some cases, you can claim “borrower defense”. This is for people who were the victim of fraud or illegal misconduct from the school attended.
Federal Student Loan Discharge Options
Total and Permanent Disability (TPD) Discharge
TPD discharge available to federal student loan borrowers (Direct Loans, FFELP Loans, Perkins Loans, and TEACH Grant Service Obligation) borrowers who become totally and permanently disabled. Most borrowers will need to submit an application to show that you meet the requirements for TPD discharge. The documentation will not be sent to your student loan servicer, it will actually be sent to Nelnet, the federal student loan servicer who helps the U.S. Department of Education with TPD claims.
Essentially you need to demonstrate that your totally and permanently disabled by providing veteran’s affairs (VA) documentation, social security administration (SSA) Documentation, or a physician certification. If you are providing a physician certification, they must certify that you are unable to engage in substantial gainful activity due to a physical or mental impairment that is either: expected to result in death; has lasted for a continuous period of 60 months, or; can be expected to last for a continuous period of at least 60 months.
The U.S. Department of Education along with the VA and SSA will identify potentially eligible borrowers. That means, the U.S. Department of Education may determine you qualify for discharge based on your status with the VA and SSA, and you will receive a letter notifying you of your eligibility for discharge.
For more information and find the necessary forms, it’s best to review DisabilityDischarge.com.
Closed School
A Closed School Discharge is available for all federal student loans, including Direct Loans, FFEL Loans, and Perkins loans. Sometimes school’s close leaving you in a challenging situation. If your school closed while you were enrolled, were on an approved leave of absence when your school closed, or your school closed within 120 days after you withdrew (if your loans were first disbursed before July 1, 2020), or your school closed within 180 after you withdrew (if your loans were first disbursed on or after July 1, 2020), you could be eligible for a Closed School Discharge.
There are a few reasons why you may not be eligible for this discharge, even if you meet the above criteria.
- You withdrew more than 120 days before you school closed, if your loans were first disbursed before July 1, 2020 (exceptional circumstances are considered)
- You withdrew more than 180 days before your school closed, if your loans were first disbursed on or after July 1, 2020 (exceptional circumstance are considered)
- You are completing a comparable program through a teach-out Note: you are not required to opt for the teach-out options presented to you
- You are completing a comparable program* by transferring academic credits or hours earned at the closed school to another school Note: if you are not transferring your credits or hours earned from the closed school, you are likely still eligible for a closed school discharge
- You are completing a comparable program* by any other comparable means
- You completed your program before the school closed, even if you didn’t receive your diploma or certificate
*Comparable program is key to determine if you are still eligible or ineligible for discharge if you transferred your credits. If you transferred your credits to a similar program, you probably aren’t eligible for discharge. However, if you transferred your credit to a completely different program, you may still be eligible for a closed school discharge. It’s best you contact your servicer to explain your situation.
There is a chance that you receive this discharge automatically, but if you don’t it’s best you contact your student loan servicer. You will likely see an automatic discharge if your school closed on or after Nov. 1, 2013 and before July 1, 2020 and you did not enroll in another school that participated in federal student aid within three years of your school closing.
False Certification Discharge
There are a few ways you could qualify for a False Certification Discharge for your Direct Loans or FFEL Loans, and they all involve your school.
Ability to Benefit False Certification Discharge
Your school certified a loan that you were ineligible to receive because you did not meet the ability-to-benefit eligibility criteria at the time your loan was certified.
Disqualifying Status False Certification Discharge
When your school certified your loan, they did so even though at the time of certification you had a status (physical or mental conditional, criminal record, or other circumstance) that disqualified you from meeting the legal requirements of employment in your state of residence in the occupation the program was preparing you for.
Unauthorized Signature or Unauthorized Payment
Your school signed your loan application or promissory note without your authorization or endorsed a loan check or signed your authorization for an EFT (electronic funds transfer) without your knowledge, and the money wasn’t given to you or applied to the charges you owed the school. This is similar to identity theft but is classified differently because your school was involved.
Death Discharge
Federal student loans (Direct Loans, FFEL Loans, and Perkins Loans) are discharged upon death of the borrower, or death of the student on whose behalf the parent obtained a Parent PLUS loan. In this unfortunate circumstance, it’s best that the family or representative of the deceased contact the loan servicer to submit acceptable documentation, such as an original death certificate, a certified copy of the death certificate, or an accurate and complete photocopy of one of those documentations.
Identify Theft
If you are a victim of identity theft, your student loan borrowing history may be affected. Identity theft isn’t technically a formal discharge option involving just the U.S. Department of Education if you have federal student loans. If you are the victim of identity theft, there are a number of steps you need to take.
- Place a fraud alert on your credit report and review your credit reports and dispute accounts you didn’t open through each credit bureau
- Freeze your credit
- Report the Identity Theft
- FTC: IdentyTheft.gov
- For federal student loans, report to the U.S. Department of Education’s Office of Inspector General: online or call 1-800-MIS-USED (1-800-647-8733)
- Contact the school that received the loan funds and let them know that loans were obtained in your name fraudulently
- File a Police Report regarding the incident. This may be required by many creditors who had accounts fraudulently opened in your name, including federal student loans.
- Work through the process with each company that had an account opened fraudulently opened in your name to close the account, remove you as the liable party, and have the credit lines removed from your credit report. This may take some time. It’s also important to ask businesses that had a fraudulent account in your name to send you a letter explaining that the account was fraudulent, you are not liable for the account, and it was removed from your credit report.
Parents, if your child borrowed a Parent PLUS loan in your name, without your knowledge, the process remains the same. You will likely need to file a police report to have the account removed from your credit, and have the loan removed as your liability to repay the debt. Unless you are able and willing to take on the debt, you are okay with dealing with the credit bureau reporting, and repayment liability, there really isn’t way to have this all removed from your credit.
If you are looking to transfer the debt, if your child is able to qualify (on their own or with a creditworthy cosigner), you may be able to transfer the Parent PLUS loan to the child’s name through a private student loan refinance.
Private Student Loan Discharge Options
Private student loan discharge options will vary between lenders. You want to check your loan terms to see if there are any options available to you. Some private student loan lenders will offer total disability or death discharge, either in their terms or on a case-by-case basis.
If you are unable to repay your student loan obligation, it’s best to contact your lender to discuss your options.
Student Loan Bankruptcy Discharge
While not impossible, it is difficult to discharge your loans through bankruptcy. However, it is possible for a judge to determine that payment of student loan debt will cause an undue financial hardship and discharge the loan.
Student Loan Refinance
If student loan discharge is not going to work out for you, you might want to consider a Direct Consolidation Loan or even student loan refinance.
The Department of Education offers borrowers to option to obtain a Direct Consolidation loan. This loan will combine your federal student loans into one easy to manage loan. The fixed interest rate you pay will be the weighted average of your current rates rounded up to the nearest 1/8th of a percent. This option will allow you to extend the term length of your loan up to 30 years if desired, to reduce the monthly payment. Please keep in mind that the longer you pay on the loan, the more the loan will cost you in interest.
Refinancing your loan or loans will not relieve you of making payments and you will still be responsible to repay the entire amount of the loan, however, you may be able to lower your interest rate or change your terms which could save you money over the life of the loan or lower your payment to make it more manageable. If you think this might be the best path for you, we encourage you to learn more.
Best Student Loan Refinance Lenders
College Ave Student Loans
- Variable rate range: 5.99% – 11.99% APR1
- Fixed rate range: 5.99% – 11.99% APR1
- No application or prepayment fees
- Apply in 3 minutes or less for instant credit decision
College Ave Student Loans products are made available through Firstrust Bank, member FDIC, First Citizens Community Bank, member FDIC, or M.Y. Safra Bank, FSB, member FDIC.. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.
1The 0.25% auto-pay interest rate reduction applies as long as the borrower or cosigner, if applicable, enrolls in auto-pay and authorizes our loan servicer to automatically deduct your monthly payments from a valid bank account via Automated Clearing House (“ACH”). The rate reduction applies for as long as the monthly payment amount is successfully deducted from the designated bank account and is suspended during periods of forbearance and certain deferments. Variable rates may increase after consummation.
2This informational repayment example uses typical loan terms for a refi borrower who selects the Full Principal & Interest Repayment Option with a 10-year repayment term, has a $40,000 loan and a 5.5% Annual Percentage Rate (“APR”): 120 monthly payments of $434.11 while in the repayment period, for a total amount of payments of $52,092.61. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary.
3$5,000 is the minimum requirement to refinance. The maximum loan amount is $250,000 for those with medical, dental, pharmacy or veterinary doctorate degrees, and $150,000 for all other undergraduate or graduate degrees.
Information advertised valid as of 03/01/2023. Variable interest rates may increase after consummation. Approved interest rate will depend on the creditworthiness of the applicant(s), lowest advertised rates only available to the most creditworthy applicants and require selection of full principal and interest payments with the shortest available loan term.
ELFI Student Loan Refinance
- Customers are saving an average of $309 every month and an average of $20,936 in total savings after refinancing their student loans with Education Loan Finance1
- Variable and fixed rates starting from 4.53% APR and 5.08% APR2
- Prequalify in as little as two minutes
- Award winning customer service from your dedicated Student Loan Advisor who is matched to you from the moment you sign up
1Average savings calculations are based on information provided by SouthEast Bank/ Education Loan Finance customers who refinanced their student loans between 8/16/2016 and 10/25/2018. While these amounts represent reported average amounts saved, actual amounts saved will vary depending upon a number of factors.
2Rates accurate as of 3/15/23. The interest rate and monthly payment for variable rate loans may increase after closing. Your actual interest rate may be different from the rates shown above and will be based on the term of your loan, your financial history, and other factors, including your cosigner’s (if any) financial history. For example, a 10 year loan with a fixed rate of 6% would have 120 payments of $11.00 per $1,000 borrowed. To qualify for refinancing or student loan consolidation through Education Loan Finance, you must have at least $10,000 in qualified student loan debt and must have earned a bachelor’s degree or higher from an approved post-secondary Education Loan Finance institution. Education Loan Finance Parent Loans are limited to a maximum of the 10-year term.
SoFi Student Loans
- Rates as low as 5.09% variable and 4.49% fixed1
- No fees or prepayment penalties
- Unemployment protection
1Fixed rates range from 4.49% APR to 8.99% APR with a 0.25% autopay discount. Variable rates from 5.09% APR to 8.99% APR with a 0.25% autopay discount. Unless required to be lower to comply with applicable law, Variable Interest rates on 5-, 7-, and 10-year terms are capped at 8.95% APR; 15- and 20-year terms are capped at 9.95% APR. Your actual rate will be within the range of rates listed above and will depend on the term you select, evaluation of your creditworthiness, income, presence of a co-signer and a variety of other factors. Lowest rates reserved for the most creditworthy borrowers. For the SoFi variable-rate product, the variable interest rate for a given month is derived by adding a margin to the 30-day average SOFR index, published two business days preceding such calendar month, rounded up to the nearest one hundredth of one percent (0.01% or 0.0001). APRs for variable-rate loans may increase after origination if the SOFR index increases. The SoFi 0.25% autopay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. This benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. The benefit lowers your interest rate but does not change the amount of your monthly payment. This benefit is suspended during periods of deferment and forbearance. Autopay is not required to receive a loan from SoFi.
Splash Financial Refinance Loan
- Rates as low as 4.59%1 Variable APR and 4.47%1 Fixed APR
- No pre-payment penalties, origination, or application fees
- See rates in 3 minutes without affecting your credit score2
1The rates displayed may include a 0.25% autopay discount.
2To check the rates and terms you qualify for, Splash Financial conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, the lender will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
Earnest Student Loan Refinancing
- Variable rates starting at 4.99% APR (including 0.25% Auto Pay discount)*
- Fixed rates starting at 4.96% APR (including 0.25% Auto Pay discount)*
- Choose your own monthly payment
- No fees of any kind and exceptional customer service for the life of your loan
- Check your rate in under 2 minutes
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Actual rate and available repayment terms will vary based on your income. Fixed rates range from 5.21% APR to 9.24% APR (excludes 0.25% Auto Pay discount). Variable rates range from 5.24% APR to 9.19% APR (excludes 0.25% Auto Pay discount). Earnest variable interest rate student loan refinance loans are based on a publicly available index, the 30-day Average Secured Overnight Financing Rate (SOFR) published by the Federal Reserve Bank of New York. The variable rate is based on the rate published on the 25th day, or the next business day, of the preceding calendar month, rounded to the nearest hundredth of a percent. The rate will not increase more than once per month. The maximum rate for your loan is 8.95% if your loan term is 10 years or less. For loan terms of more than 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95%. Please note, we are not able to offer variable rate loans in AK, IL, MN, NH, OH, TN, and TX. Our lowest rates are only available for our most credit qualified borrowers and contain our .25% auto pay discount from a checking or savings account.
*Auto Pay Discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance. Not all borrowers will qualify for our lowest rates, and your rate will be based on creditworthiness at time of application.
The information provided on this page is updated as of 03/09/2023. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice.
Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 303 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, e-mail us at [email protected], or call 888-601-2801 for more information on our student loan refinance product.
THIS IS AN ADVERTISEMENT. YOU ARE NOT REQUIRED TO MAKE ANY PAYMENT OR TAKE ANY OTHER ACTION IN RESPONSE TO THIS OFFER.