Student Loan Forgiveness: How Does It Work?

student loan forgiveness

Perhaps the next biggest financial crisis that is about to burst and come to head is the trillion dollar United States student loan debt.

If these loans come into default even at 10%, then this crisis to hit the US economy could be even bigger than that of the global systemic housing crisis of 2008. It will be back to the taxpayers having to pay the freight.

Part of the reason for this is that with student loans, there is no collateral. So there is no lien against the borrower’s assets.

This is part of the reason that these loans, for the most part, cannot be included in a bankruptcy. They are required to be paid back. In all fairness, if you signed the master promissory note, you should be paying it back after you received the educational benefits that these loans afforded you.

However, the US Government does recognize that sometimes certain mitigating circumstances can make it impossible to pay it back and we will discuss this option briefly.

The best place to find out how student loan forgiveness works and to see if you qualify is to go to Federal Student Aid Website. There, is the following reason for a student loan to be considered to be forgiven or canceled. Student loan forgiveness falls under the three main categories of a direct loan, Federal Family Education Loan (FFEL) or a Federal Perkins Loan.

  • Closed School Discharge
  • Public Service Loan Forgiveness
  • Teacher Loan Forgiveness
  • Perkins Loan Cancellation and Discharge
  • Total and Permanent Disability Discharge
  • Discharge Due to Death
  • Discharge in Bankruptcy (very rare allowance)
  • False Certification of Student Eligibility or Unauthorized payment discharge
  • Unpaid Refund Discharge
  • Borrower Defense Discharge

These are the main ones that you could experience loan cancellation or discharge. You should educate yourself on each one to see if you qualify for the student loan forgiveness program. Each of these reasons has their own unique set of circumstances, conditions, and procedures.

In addition, your unique situation will also come into the play as to the reason for a loan discharge or cancellation. For example, if you become a teacher to low-income families in the public school system, you may qualify. Of course, that also means you are also not making a lot of money in your chosen field of teaching.

student loan forgiveness program
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If you believe that you do fall under one of the qualifications to have your loan discharged, then the first step is to contact the loan servicer. They will provide you with the necessary forms and procedures to apply to the type of loan cancellation you feel you qualify for.

The most important thing to remember is that you should continue to make your payments before and during the application and review process of having your loan canceled or forgiven. Do not make the assumption that a student loan forgiveness is an automatic approval process.

Cooperation with the process and recognition of the fact that you signed the master promissory note to pay back the loan is paramount.

So taking the time to determine if you qualify for student loan forgiveness or cancellation is a matter of choice, just as you accepting the loan was a matter of choice, to begin with.

Whether you qualify or do not qualify, take the responsibly accountable road and you will not go wrong.

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