Student Loan Discharge: The Definitive Guide

Written by: Kristyn Pilgrim
Updated: 12/09/19

If you have student loan debt, there may be some circumstances that allow you to get rid of it.

Many lawmakers and advocates talk about student loan forgiveness and expanding these programs. In some cases, this has led to confusion about loan forgiveness compared to student loan discharge. Both student loan discharge and forgiveness allow the person with debt to get rid of the remainder of their loans, but what are the differences?

The biggest difference between student loan discharge and student loan forgiveness is the circumstance that leads to the cancellation of debt. Student loan forgiveness comes from giving back to the community, such as joining the Peace Corps or pursuing a teaching career in a low-income neighborhood. By providing a service to a community in need, many loan organizations and the federal government will forgive some or all student loan debt.

In contrast, student loan discharge involves the community supporting the individual while they or their family undergoes a hardship. For example, if you become permanently and totally disabled and are no longer able to work, your student loans can be discharged. In some cases of bankruptcy, you can also qualify for student loan discharge.

There are several hardship circumstances that can lead to discharging student loan debt. It is important to know these circumstances because many individuals and their families feel pressured to keep making their student loan payments when they do not have to.

Ideally, student loans lead to a high-quality education that allows you to pursue a well-paying career so you can repay the loan and live well. But hard times can fall on anyone. When they do, student loan organizations are still there to support you through different programs. 

Circumstances Leading to Student Loan Discharge

Student loans are designed to be repaid over 10 or more years, with interest. The point of borrowing money for school is that you have a higher quality of life because you can get a better job with more education. But you may find yourself struggling to repay your student loans, which is sometimes called hardship.

Personal and financial hardship can mean you cannot keep a job, or you have accrued such a high financial burden that you cannot repay it. Some of these forms of hardship qualify you for student loan discharge, so contact the United States Department of Education for help.

Types of discharge include the following: 

  • Death discharge: If the person who took out student loans dies, then their debt can be discharged. The person filing for the death discharge must provide proof of death, typically in the form of the death certificate – either an original or a certified copy. Accurate and complete photocopies of these documents may also be accepted.

    For the Direct Plus Loan for parents, you can apply for discharge on behalf of the parent who took out the loan if that parent dies. Similarly, if you are a parent who took out a Direct Plus Loan for your child and that child dies, you can apply for student loan discharge.

  • Disability discharge: if you become totally and permanently disabled so you are no longer able to work even part time, you may qualify for total and permanent disability discharge (TPD). Your disability could be mental or physical, but it must prevent you from pursuing any gainful activity for at least five years, or it must be expected to result in death.

    Qualifying for TPD releases you from paying federal loans, including the William D. Ford Federal Direct Loan, the Federal Family Education Loan (FFEL), or the federal Perkins Loan. If you signed up for debt forgiveness through the TEACH Grant program, you would no longer be required to fulfill that service if you qualify for TPD.

    The Social Security Administration (SSA) and the Department of Veterans Affairs (VA) have agreements that allow them to reach out to those with student loans who have applied for some of these benefits. They let recipients know that, in addition to some disability benefits through either program, they may also be eligible for student loan discharge. If you think you qualify for TPD but have not been notified, you can still pursue the option.

    Ways to show you qualify for TPD include the following:

    • You have documentation of the VA determination from a doctor stating that you are 100% disabled due to your military service.
    • Your doctor has determined that you are disabled and qualify for Social Security Insurance (SSI) or Social Security Disability Insurance (SSDI), and your next qualification review is in five to seven years.
    • A doctor of medicine (MD) or osteopathy (DO) has certified that you are totally and permanently disabled, so you cannot pursue any gainful activity.

You or your legal representative can submit documentation stating that you are disabled. The federal program that discharges student loan debt will contact the lenders and have them suspend collection activity while your discharge status is determined. This means you do not have to make loan payments while your case is being reviewed.

  • Bankruptcy discharge: If you have such a large financial burden that you cannot repay any of your debts, including your student loans, filing for bankruptcy can alleviate this problem. However, only two forms of bankruptcy qualify you for student loan discharge: Chapter 7 and Chapter 13.

    The documents submitted during these filings demonstrate that repayment of student loans would impose an undue hardship on you and your dependents. The final decision on bankruptcy discharge will be made in an adversary proceeding in bankruptcy court, during which your creditors (including the student loan agency) may be present to dispute this claim.

    In bankruptcy court, hardship is considered when:
    • Repayment would cause you to fall below a minimum standard of living.
    • Repayment would cause this hardship to continue during a significant portion of the loan repayment period.
    • You have made good faith efforts to repay the loan before filing for bankruptcy.

If you qualify for either Chapter 7 or Chapter 13 bankruptcy, loan collection activity will cease until your discharge claim is fully processed. You may not qualify for full student loan discharge, and you may be required to repay some of the remainder with different terms or a lower interest rate. It is important to remember that lenders are willing to work with you on payment plans that fit your needs.

Financial struggles are common, so the inability to find a job or dropping out before graduation and being unable to find a high-paying job are not automatic causes of bankruptcy, nor do they automatically qualify you for hardship in legal terms. 

  • Closed school discharge: If the college, university, or professional school you are attending closed while you are still paying loans, this affects the status of your degree, which may impact your employability. In turn, the federal government recognizes this as a form of hardship and can discharge part or all of your student loans from this school.

    Closed school discharge may be possible if you were unable to complete your degree because your school closed and:
    • You were enrolled at the time it closed.
    • You were on an approved leave of absence when it closed.
    • Your school closed within 120 days after you withdrew.

If these criteria are met, you may qualify for 100% discharge of your federal student loans. However, if you completed the coursework before the school closed, whether or not you received a certificate or diploma; if you transferred credits from the closed school to another school; or you completed a comparable program at another school, you will not be eligible for this form of student loan discharge.

If you are a parent who took out a Direct Plus Loan, you can have a portion of this discharged if the school your child attended closed, preventing them from completing their academic program.

If you attended a school that scammed or defrauded students, you might qualify for a type of student loan discharge, whether the school has closed or not, since the school has likely lost its accreditation. 

  • False certification discharge: There are several potential reasons that a school may falsely certify that a student is eligible for certain types of loans. These may qualify you for student loan discharge:

    • Student eligibility/ability to benefit: If the school falsely believed you would be able to benefit from their training, or you did not meet their requirements, you should not have received a loan that would go toward that program.

      Parents who take out Direct Plus Loans can qualify to have a portion of this federal loan discharged if their eligibility for this program was falsely certified by the school.

    • Disqualifying status: If you have a physical or mental problem, you do not meet age requirements, you have a criminal record, or you otherwise do not qualify for the degree program, but the school does not catch this or falsely certifies you for the program and then the loan, you can have the loan discharged.

    • Unauthorized signature or payment: If the school or someone else signed your name, whether as a form of financial fraud or not, or the school endorsed your loan check without your consent or authorization, that loan money was not granted to you with your knowledge or authorization. As a result, you can apply to have it discharged.

    • Identity theft: Someone can apply for a loan in your name after stealing your identity and then never pay it back. In the case of student loans, you can apply to have this discharged once you have other information showing that your identity has been stolen and misused.

      If you are a parent of a college-aged dependent child and a Direct Plus Loan was taken out in your name after your identity was stolen, you can apply to have this loan forgiven so it does not impact your credit score. 

  • Unpaid refund discharge: If you withdrew from school after receiving some types of federal student loans and the school was required to refund some or all of the loan but never did, you can apply for student loan discharge for at least the portion that the school failed to repay.

    In cases when you, as a parent, took out a Direct Plus Loan for your college student, but your child either withdrew from school or did not pay the refund of your loan money as legally required, you can apply for student loan discharge. 

Student Loan Discharge Is One Method for Forgiving Debt

If you have a federal student loan, applying for loan forgiveness, discharge, or cancellation can begin when you use the forms available at the Federal Student Aid website. If you need a private loan discharged, you should start by talking to the organization that provided the loan, like the bank or nonprofit company. Reading the terms of your loan can help you understand how to discharge the loan due to hardship or if there are other ways to cancel the debt.

Once you know you qualify for student loan discharge, you can stop paying the monthly payments. In some cases, your loan may be partially discharged, so you are still responsible for the remaining amount, and you can negotiate a new payment plan with the lending company.

In other cases of extreme hardship, you may qualify for a refund for some or all of the money you paid on the loan. If the hardship you experienced caused you to default or become delinquent on your loan, this information may be expunged from your credit record.