Student Loans and Bankruptcy

LOAN CANCELLATIONS AND DISCHARGE

All loans received under programs authorized by Title IV, of the Higher Education Act can be canceled for several different circumstances including: (1) in the event of your death; or (2) if you become totally and permanently disabled after the loan is disbursed.

In addition, some loan types may qualify for loan discharge under a variety of conditions. Some of the most common cancellation provisions are listed for you below:

the school you attended improperly certified your ability to benefit from the training given.

the school you attended closed while you were in attendance or within 90 days after you withdrew from the school.

A National Defense Student Loan can be canceled in 2 additional circumstances: (1) full-time teaching and (2) military service.

Finally, your obligation to repay your loan may be discharged in bankruptcy. (Ed. note: good flippin' luck; see undue hardship grounds below to qualify)

Also please visit the Discharges section of the main FSA site for additional information on loan cancellation and discharges.

Death
In the event of the borrower's death, or on or after July 23, 1992 the death of the student for whom a parent received a PLUS loan, the obligation of the borrower and any endorser to make any further payments on the loan is discharged.

To verify a borrower's death, the servicing agency must have the original, certified copy, or clear, accurate, and complete photocopy of the original or certified death certificate. The U.S. Department of Education cannot accept a faxed copy.

Total and Permanent Disability
If a physician (doctor of medicine or osteopathy) certified that you are totally and permanently disabled and you meet certain other requirements during a 3 year conditional discharge period your loan(s) may be discharged.

You may request a "Loan Discharge Application: Total and Permanent Disability" from our forms request page.

False Certification
If you received a Direct Loan or a Federal Family Education Loan (FFEL) Program Loan on or after January 1, 1986, you may qualify for a False Certification discharge if you (or the student for whom a parent received a PLUS loan) received a loan that was falsely certified by an eligible school. Your eligibility to borrow is considered to have been falsely certified if the school--

Admitted you on the basis of ability to benefit from its training and you did not meet the applicable requirements for admission on the basis of ability to benefit; or
Signed your name without your authorization on the loan application or promissory note; or

You have a physical, mental, or legal status or condition at the time of enrollment that would legally bar employment in your field of study.

You are the victim of identity theft.

In order to permit a student to borrow a Federal Direct Loan or FFEL Program Loan, schools are required to certify that student borrowers who lack a high school diploma or GED have the ability to benefit from the training offered by the institution.

False certification of a student borrower's eligibility occurs, for example, if the school failed to test such a student's ability to benefit or conducted testing in an improper manner. Schools may satisfy the ability to benefit requirements, for example, by testing students or offering courses in remedial education.

Misrepresentations, by the school, on the other hand, regarding the school's educational program or its financial or administrative capability, including the school's placement services or the quality of the school's facilities, faculty, or equipment are not part of the process of "certification" of the student's eligibility to borrow and do not entitle the borrower to False Certification loan discharge.

If your loan is discharged, you will not owe any more payments on the loan, and you will get a refund of payments you have made in the past. Also, if the loan is discharged, the servicing agency will tell credit reporting agencies that the loan was discharged, and any adverse credit history resulting from nonpayment of the discharged loan will be deleted. In addition, your discharged loan will not prevent you from applying for federal student financial aid.

You may request a "Loan Discharge Application: False Certification of Ability to Benefit , Loan Discharge Application: False Certification (Disqualifying Status), Loan Discharge Application: Unauthorized Signature/Unauthorized Payment", or "Loan Discharge Application: False Certification (Identity Theft)" by clicking here or by contacting us.

Closed School
If you received a Federal Perkins Loan Direct Loan or FFEL Program Loan on or after January 1, 1986, you may qualify for a Closed School discharge if you (or the student for whom a parent received a PLUS loan) could not complete the program of study for which the loan was intended because the school at which you (or student) were enrolled, closed while you were in attendance, or you (or student) withdrew from the school, or were on an approved leave of absence, not more than 90 days prior to the date the school closed. You must not have completed the program of study through a teach-out at another school or by transferring academic credits or hours earned at the closed school to another school.

If your loan is discharged, you will not owe any more payments on the loan, and you will get a refund of payments you made in the past. Also, if the loan is discharged, the servicing agency will tell credit reporting agencies that the loan was discharged, and any adverse credit history resulting from nonpayment of the discharged loan will be deleted. In addition, your discharged loan will not prevent you from applying for additional federal student financial aid.

If you believe that a school you attended may have closed, you may be able to use the Closed School Database to confirm this and to determine the date the school closed. Please note that the closed school list includes only schools that at one time participated in the federal student aid programs administered by the U.S. Department of Education. A closed school that never participated in the programs administered by the Department will not be on this database.

Please visit our Closed School Information section for more information on this topic.

You may request an "Loan Discharge Application: School Closure" by clicking here or by contacting us to request an application.

Full-time Teaching
The Teacher Loan Forgiveness Program grants loan forgiveness of up to $17,500 for teachers in certain specialties and up to $5,000 for other teachers, who teach for five years in certain low-income schools and meet other requirements. This forgiveness benefit is available to Direct Loan and Federal Family Education Loan (FFEL) program borrowers who did not have an outstanding balance on a Direct Loan of FFEL Program loan on October 1, 1998, or on the date they obtained a Direct Loan of FFEL program loan after October 1, 1998.

If you received a Perkins Loan or a National Direct Student Loan, you may qualify for the teacher loan cancellation.

Please visit the Cancellation/Deferment Options for Teachers Home Page for additional information.

Military Service
Recipients of a National Defense Student Loan may receive partial cancellation of their loan for their service in the United States Armed Forces if the loan was disbursed after April 13, 1970 and full-time active service began after June 30, 1970.

Recipients of a National Direct Student Loan and Perkins Loan may receive partial cancellation of their loan for their service in the United States Armed Forces if his/her military service was for a full year in a hostile area.

If you believe that you may qualify for cancellation of your loan(s) due to your military service as described above, you should send a copy of your DD214 (discharge form) and letter of explanation to the agency servicing your loan.

Bankruptcy
Effective October 8, 1998, your obligation to repay Title IV, HEA student loan and grant liabilities can no longer be canceled (discharged) due to bankruptcy, unless you can successfully prove that repayment of the debt would cause "undue hardship" as defined by case law in your jurisdiction. Previously, student loan and grant liabilities could only be canceled (discharged) due to bankruptcy under certain conditions which, in general, depended on the amount of time between the date on which a loan or grant liability was due or the date that the bankruptcy was filed, as well as undue hardship.

Effective May 28, 1991 and prior to October 8, 1998, a loan or grant liability was discharged by entry of a general discharge order if the first payment came due on the debt at least 7 years before the bankruptcy was filed. Prior to 1991 amendments, only five years was required. Any grace periods, forbearance, or deferment must be subtracted from the time elapsed between the first payment due date and the filing date when calculating time in repayment. Debts outstanding for less than the required seven year period could be discharged only if the court made an express finding that the repayment of the debt would place an "undue hardship" on the borrower. These non-dischargeability requirements apply to educational loans received by both student borrowers and by parent borrowers, and apply to loans received by any kind of borrower to pay off prior loans (Consolidation Loans). Dischargeability of these types of debts is governed by 11 U.S.C. 523 (a)(8). In order to determine the dischargeability of a loan, the servicing agency needs the following three pieces of information from you or your attorney:

Notice of First Meeting of Creditors;
List of Creditors (Schedule A-3); and
the Final Discharge Order

Please call us 1-800-621-3115 for additional information on any of the information on this page.

US Department of Education, Federal Student Aid Agency