If you're struggling with student loan payments, you may be wondering about student loan forgiveness, cancellation, and discharge. While all three options aim to reduce or eliminate student loan payments, the eligibility requirements differ. They vary based on factors such as the type of loan you have, your occupation, and the specific hardship you’re facing. Understanding the differences between these options can help you determine which one is the right choice for you.
Written by Attorney Paige Hooper.
Updated September 12, 2023
Student Loan Forgiveness, Cancellation, and Discharge: What’s The Difference?
The terms forgiveness, cancellation, and discharge all mean the same thing with regard to student loans: You’re no longer obligated to pay all or part of your loan debt. Considering that Americans collectively owe $1.75 trillion in student loans, any of those words would sound good to most borrowers!
Usually, though, we use these words in different contexts. Forgiveness or cancellation usually means your debt has been erased due to your employment or service accomplishments. Discharge usually means your debt has been erased due to some circumstance beyond your control, such as disability or financial struggles leading to bankruptcy.
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What Is Student Loan Forgiveness?
The U.S. government offers several student loan forgiveness programs to borrowers with federal student loans. Most of these programs are linked to your employment.
Each loan forgiveness program has its own rules and requirements. But generally, if you work in a certain field for a certain amount of time, you can have some or all of your loan wiped out. You can only participate in one federal forgiveness program at a time, even if the requirements overlap.
What’s Happening With Biden’s Student Loan Forgiveness Plan?
In August 2022, the Biden-Harris administration and the U.S. Department of Education announced a student loan forgiveness plan. The program was to be open to most federal student loan borrowers whose annual income for 2020 or 2021 was either below $125,000 (for individuals) or $250,000 (for couples or heads of households).
Unfortunately, the Supreme Court shot down this proposed program in the Summer of 2023. After a three and a half year payment pause, student loan interest begins accruing in September of 2023 with monthly student loan payments beginning again in October of 2023.
Read more in our article Student Loan Payments Are Resuming: Are You Ready?
What Are Your Other Student Loan Forgiveness Options?
The most popular is the Public Service Loan Forgiveness (PSLF) program. There are also other occupation-based forgiveness options for healthcare workers, teachers, and even attorneys.
Public Service Loan Forgiveness
One of the largest forgiveness programs is Public Service Loan Forgiveness (PSLF). Once you complete all the requirements, the PSLF program forgives your entire remaining loan balance.
To qualify for PSLF, you must:
Be employed full time by a federal, state, local, or tribal government (including military service, AmeriCorps, or the Peace Corps) or a qualifying not-for-profit organization
Make 120 full, on-time monthly payments (10 years)
Have Direct student loans. You can consolidate indirect federal loans into a Direct consolidation loan to meet this requirement. But payments you made before consolidating don’t count toward the qualifying 120 payments.
Be enrolled in an income-driven repayment (IDR) plan. Payments made under the 10-year Standard Repayment Plan also count toward the 120 payments. But if you made all 120 payments under the standard plan, your loan would be paid in full and there would be no remaining balance to forgive. Payments made under other repayment plans, such as graduated or extended repayment, don’t count toward the 120 payments.
Loan Forgiveness for Other Occupations
There are many student loan forgiveness and assistance programs available at both the federal and state level. Many of these are employment-based, particularly for teachers, healthcare workers, and attorneys. This is because teachers are often underpaid, while healthcare workers and lawyers often have very high loan debt due to more years of school.
The Teacher Loan Forgiveness program is another popular option for educators with federal student loan debt. In addition, teachers, lawyers, and healthcare workers who work in the public sector may also qualify for PSLF. And some state-based loan forgiveness programs have no employment restrictions, such as New York’s Get on Your Feet loan forgiveness program or Maryland’s SmartBuy program.
What Is Student Loan Cancellation?
The words forgiveness and cancellation can be used interchangeably when it comes to student loans. But we typically only use the word cancellation in connection with Federal Perkins Loans.
The Perkins Loan program ended in September 2017, but many Perkins Loans are still in repayment. According to the U.S. Department of Education, 1.3 million borrowers owe $3.8 billion on Perkins Loans as of early 2023.
The Perkins Loan program includes built-in cancellation provisions for borrowers who work in education or certain other service-related fields. These cancellation provisions are only available to borrowers with federal Perkins Loans. If you consolidate your Perkins Loan with other federal loans, it’s no longer eligible for debt cancellation.
How Does Perkins Loan Cancellation Work?
Perkins Loan cancellation is based on qualified employment or volunteer service. The most common type of Perkins Loan cancellation is for teachers. Teachers with Perkins Loans are eligible for cancellation each year they were employed full time as a teacher at a public or nonprofit elementary or secondary school and also met one of these requirements:
Taught science, math, foreign language, bilingual education, or any other field in which their state has a shortage of teachers
Taught in a school serving families with low incomes
Taught special education (this includes teaching children, toddlers, or infants with disabilities)
Perkins Loan cancellation doesn’t require teaching a minimum number of years or making a minimum number of loan payments. Instead, for each year that you teach full time, a percentage of your loan can be canceled: 15% for the first and second years, 20% for the third and fourth years, and 30% for the fifth year.
In addition to teachers, there are also Perkins Loan cancellation benefits for borrowers who work or serve as the following, (though not all qualify for 100% cancellation):
Early childhood education provider
Employee at a child or family services agency
Faculty member at a tribal college or university
Law enforcement officer
Librarian with master’s degree at Title I school
Nurse or medical technician
Professional provider of early intervention (disability) services
Speech pathologist with master’s degree at Title I school
Volunteer service (AmeriCorps VISTA or Peace Corps)
List courtesy of the U.S. Department of Education.
What Is Student Loan Discharge?
Essentially, a student loan discharge means the same thing as forgiveness or cancellation. But most of the time, we use the word discharge in connection with undesirable circumstances. Some examples (discussed in more detail below) include the borrower’s disability, death, or financial hardship leading to bankruptcy. It can also be related to a school closure.
How Does Total and Permanent Disability Discharge Work?
You may be eligible for a full discharge of your federal student loans if you’re totally and permanently disabled (TPD). The discharge only applies to Direct Loans, federal Perkins Loans, or loans made under the Federal Family Education Loan (FFEL) program. You must submit evidence of your disability (sometimes called a disability rating) from either a doctor, the Social Security Administration, or the Department of Veterans Affairs.
What Are the Other Student Loan Discharge Programs?
There are also federal loan discharge programs available for other circumstances besides TPD.
Some examples include:
Closed School Discharge: You may qualify if your school closes while you’re enrolled (or soon after you withdraw). The Closed School Discharge applies to Direct, FFEL program, and Perkins loans.
Discharge Due to Death: If you die, your Direct, FFEL program, and Perkins loans, as well as PLUS loans incurred on your behalf, may qualify for discharge.
False Certification Discharge: Direct and FFEL program loans may qualify for discharge if your school falsely certified that you were eligible to receive those loans.
Unpaid Refund Discharge: If you withdrew from school after your loan was disbursed, your school may have been required to return your loan money to the lender for the period you didn’t attend. If your school didn’t return the funds as required, you might be able to discharge the amount that wasn’t returned. This discharge applies to Direct and FFEL program loans only.
Borrower Defense to Repayment: If you relied on statements by your school when deciding to take out a Direct Loan, and then those statements turned out to be false or misleading, you may qualify for a discharge of that loan.
Can Bankruptcy Discharge Student Loans?
In some cases, yes. Though bankruptcy law makes student loans more difficult to discharge than most types of debt, it is possible. To have your student loan debt discharged in bankruptcy, you must file a separate adversary proceeding in bankruptcy court after you file your bankruptcy case. In the adversary proceeding, you must prove that paying your loans would cause you undue hardship.
Most courts use a legal standard called the Brunner test to determine undue hardship. Historically, under this subjective test, only debtors with truly exceptional circumstances qualified to discharge their student loans. Recently, the U.S. Department of Education and Department of Justice released new guidelines clarifying what undue hardship means and simplifying the process to prove it.
If you can prove undue hardship, the court will grant your student loan discharge. This streamlined process is extremely helpful for borrowers whose student loans are owned by the Department of Education (this includes all Direct Loans, including Direct Consolidation Loans).
If you have Direct Loans you’d like to discharge in bankruptcy, Upsolve may be able to help prepare your bankruptcy case and undue hardship claim. Use our free screener now to see if you qualify.
Note that if you have private loans, or federal loans that are owned by a loan servicer other than the Department of Education, your lender isn’t bound by the new guidelines and may argue that stricter standards apply. In this case, you’ll likely need a bankruptcy lawyer to help with your case.