In most cases, the only way a person can eliminate student loan debt is to simply pay it off. However, the government does provide for some ways to reduce federal student loan debt in exchange for public service or as part of a long-term repayment plan. Individuals who are disabled or who are otherwise judged to be incapable of ever repaying their loans may also be entitled to a cancellation of their student loan debt.
Problems With Your School
You cannot receive a cancellation of your student loans just because you were unhappy with the school you attended, the school misrepresented its educational program or you couldn't get a job or license to practice after graduation. However, there are a few circumstances under which a problem with your school could result in loan cancellation. If the school closed while you were a student or you withdrew from the school within 90 days before it closed, you may be entitled to a cancellation of your student loans.
Your student loans are also subject to cancellation if you can show that the school "falsely certified" that you could benefit from attending the school. Federal law requires schools to determine whether someone who does not hold a high school diploma or its equivalent can actually benefit from higher education. A school is responsible for providing you with testing or some other means of determining whether you would be able to complete the program. If it doesn't do this, but certifies that you can benefit and thus should be awarded student aid, you can request that your loans be canceled. Similarly, if a school was aware at the time of your enrollment that you had a disability or a legal issue that would keep you from being employed in your chosen field of study, you may also be entitled to a loan cancellation.
Bankruptcy
Bankruptcy law treats student loans differently than other debt. In most cases, you cannot discharge student loans, even private student loans, in bankruptcy. However, if you are able to show that paying your student loans is an "undue hardship" and that you are unlikely to ever be able to repay your loans, you may be able to include them in a bankruptcy discharge.
The standard for proving undue hardship is high, and in many cases, the only people who can successfully argue that they cannot now and will never be able afford and repay their student loans are those who are disabled. In some cases, however, people with steady jobs, yet modest incomes, who have made a good faith effort to repay their loans have been granted a student loan discharge in bankruptcy. If your student loans represent a significant financial problem for you and your family, talk to a bankruptcy attorney about your options.
Disability
If you have a disability or illness that prevents you from supporting yourself, you may be able to have your student loan balance canceled. Your condition must be very serious and you must be able to prove that it has caused you to be disabled for at least five years or that your doctors believe that your disability will continue for five years or eventually end your life. After receiving a discharge of your loan, you will be subject to monitoring for three years: If you recover or are able to earn an income, you may lose your discharge and may have to resume loan repayment.
Public Service
If you work in certain public service jobs, such as teaching or social service, you are eligible to apply to have your student loans discharged after you make 10 years of payments. Any loan amount forgiven under the federal Public Service Loan Forgiveness program is not considered taxable income, so you won't have to pay taxes on your forgiven balance. The student loans that are eligible for discharge under this plan must be repaid under one of the federal Direct Loan Repayment programs. If you have a Perkins loan, you can consolidate it with your other loans in order for it to be eligible for cancellation under this program.
Repayment Plans
Some long-term student loan repayment plans, such as the income-based repayment plan, allow you to cancel your debt balance after 25 years of payments. However, you may have to report the canceled debt as taxable income. Because these repayment plans are significantly longer than the standard 10 year plan, you may end up paying far more in interest in this type of plan than you would if you had made larger payments over a shorter repayment period.
Identity Theft and Fraud
If you can prove that a person or school requested student loans in your name without your permission, you can request that the loans be canceled. Be prepared to provide proof to your student loan lender that you were the victim of fraud. You may also be asked to cooperate with law enforcement authorities if your lender requests an investigation into the issue.
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