Have some student loan liability waiting to be repaid? Well, we all do. It is indeed difficult to complete your higher education without incurring student loans in the US due to high cost of books, tuition fee and living expenditure. But what if someone says that you no longer need to pay for your student loans? It off course sounds relieving but not everyone is eligible for a discharge or forgiveness of student loan.
But some of us carrying federal student loans, who due to some genuine reasons need help, are facilitated by the US department of Education. Student loan forgiveness programs are also available on private student debt but the provision of the same highly depends on the private lender. Some of the Private Student Loans servicing giants are Sallie Mae, New York HESC and WellsFargo. Let us first understand what does discharge of a student loan mean.
Discharge of a Federal Student Loan
Discharge of a loan means when the borrower is no longer liable to repay one’s loan. In other words, the loan is cancelled and the debt burden is removed. In the US economy, discharge of loan is generally associated with student loan, home loans and mortgages. There can be some other reasons as well for discharge of loan. The Federal Student Aide, an office of the US Department of Education offers for forgiveness, cancellation and discharge of student loans under different circumstances to help student borrowers in genuine need. One major reason for discharge of loan is bankruptcy of the borrower.
Other than that, an individual might be eligible for a discharge if he/she withdrew from school but the school did not pay a refund that it owed to the U.S. Department of Education or in some cases, to the lender. There is another plan called The Federal Perkins Loan Cancellation that applies to individuals who perform certain types of public services or certain types of occupations such as Teacher, Member of the U.S. armed forces, Nurse or medical technician et cetera. Also, an individual with Federal Student Loan might qualify for Total and permanent disability discharge programme if they are incapable of arranging in any gainful activity because of physical or mental impairment.
Closed School Discharge
This is a mechanism where students can get their student loans discharged upto hundred percent due to closure of their school. An individual might be eligible to have his/ her Direct Loan, Federal Perkins Loan or Federal Family Education Loan forgiven completely under some specific situations.
If the individual was not able to complete his educational programme during his enrolment, due to closure of school or the school closed within 90 days of withdrawal from it, the student would be eligible for Closed School Discharge. The student would be considered enrolled in the school if his leave for absence is approved by the school. However, he/ she would not be eligible for any kind of discharge relief if the individual withdrew more than ninety days before the school’s closure. Also, if the student has completed all his/ her coursework related to the course but is yet to receive the certification for the same, he would no longer be eligible for student loan discharge.
The student need to contact his/ her Loan Servicer to gain further knowledge of whether they qualify for the discharge or not, and also to apply for such a discharge. It is advised that the student must continue making loan repayment when his/ her loan discharge application is being considered. If the student’s loan is discharged, he would no longer be required to make any further payments towards his/ her debt. In addition, the discharge also eliminates any record of default that the loan might be carrying and does not bring with it any additional tax burden or implications. In some cases, the US Department of Education also refunds the loan repayments made by the student towards the debt.
However, there is a possibility of the loan discharge application getting rejected. Generally, the final decision of whether the loan will be discharged or cannot be appealed and is not reviewed or reconsidered by the US Department of Education. On rejection of the discharge application, the borrower is required to make the remaining payment towards his/ her student debt.
There have been cases in the past where students were left in the mid of financial crisis due to closure of school that led the policymakers to think of such a discharge plan on student loans. With such possibilities existent, discharge of student loans due to closure of school surely benefits many, if not all. While there is a definite policy measure of closed school discharge in case of Federal student loan, the situation becomes dicey with Private student loans.
It is the responsibility of every individual to analyse all terms and conditions of the loan contract before entering into one and be sure of the consequences that may follow in such a case. In the mid of criticism by some economists for high cost of subsidies, such discharge programs on federal student loans have succeeded in benefiting more people with each amendment and hopefully, would continue the legacy with coming years.