Although used interchangeably, loan discharge, forgiveness, and cancellation have different relief for borrowers.
Loan discharge happens after being in repayment or an event occurs, like the death of the borrower. There are several types of loan discharge, like income-driven repayment (IDR), disability discharge, closed school discharge, borrower’s defense discharge, and death of the borrower.
Loan forgiveness is usually offered due to your job, like Teacher Loan Forgiveness (TLF) or Public Service Loan Forgiveness (PSLF).
Loan cancellation is like the up to $20,000 in debt cancellation proposed by the Biden administration, currently before the U.S. Supreme Court.
|Loan Cancellation||Loan Discharge||Loan Forgiveness|
|Cancellation of debt, like the up to $20,000 in debt cancellation proposed by Biden that is currently before the U.S. Supreme Court||Discharge happens after years of repayment or an event occurs. Income-driven Repayment (IDR) Total & Permanent Disability Discharge Closed School Discharge Borrower Defense DischargeDeath of the borrower||If you’re no longer required to make payments on your loans due to your job, this is generally called forgiveness. For example: (1) Teacher Loan Forgiveness (TLF); or (2) Public Service Loan Forgiveness (PSLF).|
Teacher and Public Service Loan Forgiveness
Teachers can get loan forgiveness using Teacher Loan Forgiveness (TLF) or the Public Service Loan Forgiveness (PSLF). Some states may have their own loan forgiveness plans for teachers.
Borrowers who have been in repayment for at least 10 years and work in public service jobs with federal, state, local, or certain non-profit organizations are eligible for forgiveness through the PSLF program.
Military service members are also eligible for PSLF if they don’t qualify for other military loan forgiveness programs like the Military College Loan Repayment Program (CLRP) or National Defense Student Loan Discharge.
Eligibility for PSLF doesn’t disqualify a borrower from Biden’s forgiveness of up to $20,000 in student loans, if upheld by the U.S. Supreme Court.
IDR loan discharge
After 20-25 years of repayment under an Income-driven repayment (IDR) plan, the remaining balance would be discharged.
Over 4.4 million borrowers have been in repayment for more than 20 years and haven’t received discharge.
Because of this, Biden has proposed reforms to IDR plans, including a one-time payment adjustment.
Total & Permanent Disability Loan Discharge
Borrowers who have a total and permanent disability are eligible for student loan discharge. This includes veterans who have a 100% disability connected to military service. Borrowers with a serious disability and receiving Social Security benefits are also eligible.
Last year, the Biden administration discharged $9 million for 425,000 disabled borrowers.
Closed School & Borrower’s Defense Loan Discharge
For-profit schools have been called predatory and a major reason for borrowers seeking student loan discharge under the “closed school loan discharge” and “borrower loan defense discharge” programs.
When these schools close, many students are left without transferable credits or promised degrees.
Military veterans tend to be targeted to take advantage of the federal funding available to them through programs like the GI Bill.
Last year, the Education Department discharged $14.5 billion for nearly 1.1 million borrowers whose colleges took advantage of them under the closed school and borrower defense discharge. Westwood College, ITT, DeVry University, and Corinthian are some of the schools.
More than 100 for-profit schools are part of the Sweet v. Cardona closed school and borrower defense class-action lawsuit represented by the Project on Predatory Student Lending.
Biden’s Loan Cancellation Plan
Loan discharges are separate from Biden’s loan cancellation up to $20,000. A loan discharge may actually provide better relief because it wipes out the balance.
Because the average borrower owes around $37k in student loans, many will still have debt after the up to $20,000 is applied to their accounts – if the Supreme Court finds in favor of Biden’s plan.
However, the one-time IDR account adjustment may help borrowers get closer to loan discharge.
Beware of scams. If you have federal loans, you do not pay to receive federal loan forgiveness or discharge. The only portal to apply for student loan forgiveness is on the Federal Student Aid (FSA) website, which is currently not accepting applications.
Resources for Borrowers
There are several organizations and advocate groups for borrowers. Below are just a few. Many work with other borrower organizations, so if they can’t assist you then can most likely point you in the right direction.
|Student Debt Crisis Center (SDCC)||Webinars on loan forgiveness applications, including ParentPlus and PSLF. Advocacy for borrowers.|
|Student Borrower Protection Center (SBPC)||Webinars on loan forgiveness applications, including ParentPlus and PSLF. Provides legal advocacy for borrowers’ rights.|
|The Debt Collective||A debtors’ union fighting to cancel debts and defend millions of households.|
|American Federation of Teachers (AFT)||Advocacy for educators on Teacher Loan Forgiveness (TLF) and PSLF.|
|Project on Predatory Student Lending (PPSL)||Representing students against the predatory for-profit college industry, Sweet v. Cardona.|
|National Consumer Law Center (NCLC)||Uses advocacy, education, and litigation to fight for economic justice.|
|Consumer Financial Protection Bureau (CFPB)||Tools and resources for borrowers to file complaints against institutions re: student loan debt.|
|Fresh Start Program – FSA Default Group||Assistance for borrowers in default on student loans.|
|Ombudsman Group – Dept of Education||Assist borrowers in resolving student loan issues, as a last resort after trying to resolve with loan servicer or college unsuccessfully.|
|NAACP||Advocacy for borrowers.|
|DOJ Guidance on Bankruptcy||Borrowers filing for bankruptcy have new guidelines.|
|Closed School Loan Discharge||Federal Student Aid (FSA)|
|Borrower Loan Defense Discharge||Apply on the FSA website|