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Loan
Discharge or Forgiveness
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Under special and
genuine circumstances you can avail the benefits of
Loan cancellation.
Loan Discharge or Loan Cancellation
is the release of a borrower from all or part of a
loan obligation due to certain circumstances.
On the other hand Loan Forgiveness is when
the Department of Education (ED)
repays all or a portion of
a borrower's Stafford loan obligations, and
Consolidation loan obligations to the extent that a
Consolidation loan repaid a borrower's Stafford loan(s).
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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 on the loan. Also, if the loan is discharged, the lender will tell
credit-reporting agencies that the loan has been discharged and any adverse credit history resulting from nonpayment of the discharged loan should be deleted. In addition, you may be eligible to apply for future federal student financial aid.
Your loan can’t be
discharged because you didn’t like the school or the
program of study, or you didn’t get a job after
completing the program of study. Remember that your student loan is your obligation.
Don’t stop making payments until you receive written
confirmation from your loan holder that your student
loan has been partially or entirely cancelled.
Your Federal Family Education Loan may qualify for loan discharge if the loan was issued under the following conditions:
You must go through the small description of the
following conditions:
1. False Certification of Ability to Benefit :
- In order to permit a student to borrow a Federal Direct 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.
But some times the False certification of a student borrower's eligibility occurs,
then the loan is discharged.
- Your loan can be discharged if the school admitted you
based on your ability to benefit from the training but you weren't properly
tested to measure that ability or you failed the test.
- You may also be eligible for this type of discharge if you did not meet the physical or legal
requirements of your state to enroll in the program or work in the career for
which you were training.
- The false certification of a student's
"ability to benefit" from the education
program may also qualify the borrower for loan
forgiveness. This discharge provision is only
available to borrowers who received their loan on
or after January 1, 1986.
- There are additional eligibility requirements,
as well as certification forms that must be
completed in order to request this discharge.
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2. False Certification for
Unauthorized Signature :
- If you believed that someone at the school or another
party, forged your signature on the loan application,
promissory
note, or
authorization for electronic funds transfer, you may qualify for a loan
discharge.
- You must provide five different samples of your signature, with
at least two of the samples on documents that are clearly dated within a year
before or after the date of the contested signature.
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3. Closed School :
- If you received a Federal Direct or FFEL Program Loan on or after January 1, 1986,
at a school that closed before you completed your studies, you may be
eligible for discharge of your loan.
- You must have been in attendance or on an
approved leave of absence when the school closed
or have withdrawn from school within 90 days of
the school closure date.
- 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 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.
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4.
Unpaid Refund (partial discharge) :
- You may qualify for a partial unpaid refund loan discharge of your student loan if your school failed to pay a tuition refund required under federal law if you withdrew during the refund period published by the school.
- Only the amount of the unpaid refund will be discharged. You may qualify for this refund whether the school is closed or opened.
- Effective July 1, 2000, the Higher Education Act
of 1965 was amended to create a new Unpaid Refund
Discharge Program. If a student withdrew, did not
attend or was terminated from a school within the
timeframe allowed by the school's refund policy,
the student is eligible for the discharge of the
amount that should have been refunded by the
school.
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5. Bankruptcy (Undue
Hardship) :
- Student loans are no longer dischargeable in any
chapter of bankruptcy unless you can prove that
repaying the loan creates an undue hardship on you
or your family. Prior law allowed
their discharge once they had been in pay status
for 7 years. The law changed in the fall of
1998.
- Proving hardship usually requires showing that
you can't provide a minimum standard of living for
yourself and your dependents if you have to repay
the loan. Some courts will discharge part of
the loan on a showing that repaying it all would
be a hardship.
- Any questions on discharging your student loan(s)
for reason of bankruptcy must be discussed with a
licensed legal professional .
- Bankruptcy does not automatically discharge your student loan debt. Your loans may only be
discharged in a separate proceeding in the Bankruptcy Court called an
Adversary Proceeding.
- The grounds for such a discharge require you to prove in a trial to the Court that payment of your loans will
result in an undue hardship on you and/or your dependents.
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6. 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 either the original death certificate or a certified copy of the death certificate.
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7. Total and Permanent Disability
:
- If the holder of the loan determines that you have become totally and permanently disabled, your obligation, and the obligation of any endorser of your loan, to make any further payments on the loan is discharged.
- The loan holder may not approve a request for the conditional
discharge / cancellation for permanent and total disability for a condition that
existed before you applied for the loan unless your doctor certifies that the
condition substantially deteriorated after the loan was approved.
- A borrower is considered totally and permanently
disabled if he/she is unable to work and earn
money or attend school because of a medical
impairment.
- If your loans are conditionally discharged, your loans will be permanently assigned to the
U.S. Department of Education for a period that will last up to three years
before your debt is completely cancelled.
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8. Teacher Loan
Forgiveness (Full-time Teaching ) :
- All or a portion of your student loan debt, up to $5,000, may be repaid if you are eligible for
the Teacher Loan Forgiveness Program.
- You must be a “new borrower” on or after October 1, 1998, and must teach for five consecutive complete years and meet
other criteria requirements.
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9. 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 an area of hostilities.
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10. Child Care Provider
Loan Forgiveness :
- Up to 100% of your student loan obligations may be forgiven, if you are eligible for
the Child Care Provider Loan Forgiveness Program.
- You must be a “new borrower” on or after October 1, 1998, and meet the required criteria. If the borrower
qualifies, the Department of Education will pay on a first-come, first-served
basis, subject to the availability of funds.
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