In limited circumstances, borrowers may be able to completely cancel their federal student loans.
Borrowers that receive loan cancellations are also eligible for reimbursement for previous payments (including tax refunds seized by the IRS and payments made by the borrower) and cleaning up of credit report problems due to student loan defaults. These critical rights are summarized below.
A. Closed School Discharge (34 C.F.R. §682.402(d)-FFEL loans) Applies only to loans received at least in part on or after January 1, 1986. Students must have been enrolled at the time of school closure or they withdrew, the withdrawal had to have occurred within 90 days of closure. The Department of Education maintains a list of official closure dates.
B. False Certification Discharge (34 C.F.R. §682.402(e)-FFEL loans) Applies only to FFEL or Direct loans received at least in part on or after January 1, 1986. Perkins loans are not eligible. To qualify, student must show that their eligibility to borrow was falsely certified by the school. In most cases, students with high school diplomas or G.E.D.s at the time of admission are not qualified. There are exceptions to the high school diploma requirement: A student may qualify if s/he was unable to meet minimum state employment requirements for the job for which the student was being trained, or if the school forged or altered the loan note or check endorsements.
C. Unpaid Refund Discharge (34 C.F.R. §682.402(l) A new discharge was passed as part of the 1998 Higher Education Act allowing students to discharge loan liability for loans obtained after January 1, 1986 to the extent of the amount of a refund that a school owed the student and failed to pay. Perkins loans are not eligible, but borrowers can already raise an unpaid refund as a defense in Perkins collection actions.
D. Disability Discharge (34 C.F.R. §682.402(c) Borrowers can discharge loans if they can document a permanent and total disability. Pre-existing conditions qualify only if there has been deterioration.
Forms for all of these discharges are available on-line at: Closed School False Certification of Ability to Benefit Particularly for false certification and unpaid refund discharges, borrowers often need to submit evidence of school fraud. NCLC has information in its files on a limited number of schools.
Additional information about government investigations of schools can be found on the web site of the Department of Education’s Office of Inspector General and the Department’s Office of Hearings and Appeals College Cost Reduction and Access Act – Struggling with Student Loans?