Student Loan Cancellation and Discharge

Session Objectives

• Understand the instances in which a borrower’s obligation to repay his or her student loan may be discharged

• Identify opportunities for borrowers to have all or a portion of their loan(s) cancelled through certain service related employment

• Obtain resources for additional information and eligibility requirements and how/where to refer borrowers

Understanding Student LoanCancellation and Discharge Provisions

• In certain situations, a borrower can have his or her federal student loan forgiven, cancelled, or discharged.

• The qualification could be due to the borrower’s job, disability, the closure of a school, or other circumstances.

Student Loan Discharge

• Qualifying Events– Death– Total & Permanent Disability– Bankruptcy– Closed School– False Certification or Unauthorized Payment– Unpaid Refund

Student Loan Cancellation/Forgiveness

• Qualifying Circumstances– Teacher Loan Forgiveness– Public Service Loan Forgiveness

Student Loan Discharge - Death• If the borrower dies, his or her federal student loans will

be discharged.• In the case of a parent PLUS loan borrower, the loan may

be discharged if– the parent borrower dies, or– the student, on whose behalf the PLUS loan was

obtained, dies• The loan will be discharged if a family member or other

representative provides a certified copy of the death certificate to the loan servicer (for a Direct Loan or FFEL Program loan).

Student Loan Discharge – Total & Permanent Disability (TPD)• A borrower may be eligible for a TPD Discharge on

federal student loans if he or she is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that– can be expected to result in death,– has lasted for a continuous period of not less than 60

months,– can be expected to last for a continuous period of not less

than 60 months; or– has been determined by the Secretary of Veterans Affairs

to be unemployable due to a service-connected disability.

Student Loan Discharge – Total & Permanent Disability (TPD)• To apply for this discharge, a borrower must have a

physician certify the discharge application.• The TPD Form must be submitted to each holder

(service) of the borrower’s loans.• For more information, go to www.disabilitydischarge.com

Note: The Dept of Education released a Notice of Proposed Rulemaking (NPRM) on July 17 that will modify the application process for TPD with final regulations effective July 1, 2013.

Student Loan Discharge - Bankruptcy• In general, education loans are usually not included in

bankruptcy debt discharge• If the borrower files Chapter 7 or Chapter 13 bankruptcy,

a student loan will be discharged in bankruptcy only if the bankruptcy court finds that repayment would impose undue hardship on the borrower and his or her dependents.– this must be decided in an adversary proceeding in

bankruptcy court.– creditors may be present to challenge the request.

Student Loan Discharge - Bankruptcy• The court uses this three-part test to determine undue

hardship:– If forced to repay the loan, the borrower would not be able

to maintain a minimal standard of living.– There is evidence that this hardship will continue for a

significant portion of the loan repayment period.– the borrower made good-faith efforts to repay the loan

before filing bankruptcy (usually this means being in repayment for a minimum of five years).

• It is VERY rare that education loans are discharged in bankruptcy

Student Loan Discharge – Closed School• A borrower may be eligible for discharge of Direct Loans

and FFEL Program loans under either of these circumstances:– The borrower’s school closes while he or she is enrolled,

and the borrower does not complete the program of study because of the closure. Any federal student loan obtained to pay the cost of attendance at that school could be discharged. If the borrower was on an approved leave of absence, the borrower is considered to have been enrolled at the school.

– The borrower’s school closes within 90 days after he or she withdraws.

Student Loan Discharge – Closed School• A borrower is not eligible for discharge of Direct Loans or

FFEL Program loans if the school closes and any of the following is true:– withdraw more than 90 days before the school closes.– completing a comparable educational program at another

school (if borrower completes such a program at another school after a loan is discharged, the borrower might have to pay back the amount of the discharge)

– borrower completed all the coursework for the program, but has not received a diploma or certificate.

• To receive a closed school discharge application, borrowers should contact their loan servicer.

Student Loan Discharge – False Certification of Student Eligibility or Unauthorized Payment• A borrower may be eligible for a discharge of Direct Loan

or FFEL Program loan in these circumstances:– Borrower’s school falsely certified his or her eligibility to

receive the loan based on the ability to benefit from its training, and borrower did not meet the ability to benefit student eligibility requirements.

– The school signed borrower’s name on the application or promissory note without his or her authorization or the school endorsed borrower’s loan check or signed authorization for electronic funds transfer without borrower’s knowledge, unless the proceeds of the loan were delivered to borrower or applied to charges owed by borrower to the school.

Student Loan Discharge – False Certification of Student Eligibility or Unauthorized Payment

– Borrower’s loan was falsely certified because he or she was a victim of identity theft.

– The school certified the borrower’s eligibility, but because of a physical or mental condition, age, criminal record, or other reason the borrower is disqualified from employment in the occupation in which he or she was being trained.

Student Loan Discharge – Unpaid Refund• Borrower may be eligible for a discharge of a Direct Loan

or FFEL Program loan if he or she withdrew from school, but the school didn’t pay a refund that it owed to the U.S. Department of Education or to the lender, as appropriate. (Borrowers should check with the school to see how refund policies apply to federal aid at the school)

• Only the amount of the unpaid refund will be discharged. Borrower may qualify for this partial discharge whether the school is closed or open. Contact the loan servicer for more information.

Student Loan Forgiveness – Teacher Loan Forgiveness• The Teacher Loan Forgiveness Program is intended to

encourage individuals to enter and continue in the teaching profession.

• Under this program, borrowers who teach full-time for five complete and consecutive academic years in certain elementary and secondary schools and educational service agencies that serve low-income families, and meet other qualifications, may be eligible for forgiveness of up to a combined total of $17,500 on Stafford Loans (if borrower only has PLUS loans, he or she is not eligible for this type of forgiveness).

Student Loan Forgiveness – Teacher Loan Forgiveness• Eligibility Requirements and Qualifying Schools• http://studentaid.ed.gov/sites/default/files/loan-forgivenes

s-for-teachers.pdf

Student Loan Forgiveness – Public Service Loan Forgiveness

• In 2007, Congress created the Public Service Loan Forgiveness Program to encourage individuals to enter and continue to work full-time in public service jobs.

• Under this program, borrowers may qualify for forgiveness of the remaining balance due on their eligible federal student loans after they have made 120 payments on those loans under certain repayment plans while employed full time by certain public service employers.

Student Loan Forgiveness – Public Service Loan Forgiveness

• What must a borrower do to have any remaining balances on his or her Direct Loans forgiven under the PSLF Program? – Borrower must make 120 on-time, full, scheduled, monthly

payments on the Direct Loans. Only payments made after October 1, 2007 qualify.

– Borrower must make those payments under a qualifying repayment plan.

– When the borrower makes each of those payments, he or she must be working full-time at a qualifying public service organization.

Student Loan Forgiveness – Public Service Loan Forgiveness• What loans are eligible for forgiveness? 

– Only loans received under the William D. Ford Federal Direct Loan (Direct Loan) Program are eligible for PSLF. Loans received under the Federal Family Education Loan (FFEL) Program, the Perkins Loan Program, or any other student loan program are not eligible for PSLF. 

– If the borrower has FFEL and/or Perkins loans, he or she may consolidate them into a Direct Consolidation Loan to take advantage of PSLF. However, only payments made on the new Direct Consolidation Loan will count toward the 120-month payment requirement for PSLF.

Student Loan Forgiveness – Public Service Loan Forgiveness• What are on-time, full, scheduled, monthly

payments? – On-time payments are those received by the borrower’s

Direct Loan servicer no later than 15 days after the scheduled payment due date. 

– Full payments are payments on the Direct Loan in an amount that equals or exceeds the amount required to pay each month under the Direct Loan repayment schedule. If a payment is made for a month that is less than what is required to pay for that month, that month's payment will not count as one of the required 120 monthly payments.

Student Loan Forgiveness – Public Service Loan Forgiveness• What are on-time, full, scheduled, monthly

payments? – Scheduled payments are those made under a qualifying

repayment plan after the servicer has billed for the month's payment. They do not include payments made while the loans are in an in-school or grace status or in a deferment or forbearance period. 

– Borrower must make separate monthly payments. Lump sum payments or payments made as advance payments for future months are not qualifying payments.

Student Loan Forgiveness – Public Service Loan Forgiveness• What is a qualifying repayment plan?

– To maximize the PSLF benefit, borrowers should repay loans on the Income-Based Repayment (IBR) Plan or the Income-Contingent Repayment (ICR) Plan, which are two of the repayment plans that qualify for PSLF. 

– Because of the longer repayment period, additional interest that will accrue on the loan, and the smaller monthly payment amount, the borrower will be left with a higher loan balance that could be forgiven.

• However, if the borrower ultimately does not meet the eligibility requirements for PSLF, the borrower will be responsible for repaying the entire balance of the loan, including all accrued interest.

Student Loan Forgiveness – Public Service Loan Forgiveness• What kinds of employment qualify? 

– Qualifying employment is any employment with a federal, state, or local government agency, entity, or organization or a non-profit organization that has been designated as tax-exempt by the Internal Revenue Service (IRS) under Section 501(c)(3) of the Internal Revenue Code (IRC). The type or nature of employment with the organization does not matter for PSLF purposes. Additionally, the type of services that these public service organizations provide does not matter for PSLF purposes. 

– A private non-profit employer that is not a tax-exempt organization under Section 501(c)(3) of the IRC may be a qualifying public service organization if it provides certain specified public services. These services include emergency management, military service, public safety, or law enforcement services; public health services; public education or public library services; school library and other school-based services; public interest law services; early childhood education; public service for individuals with disabilities and the elderly.

Student Loan Forgiveness – Public Service Loan Forgiveness• How can borrowers keep track of PSLF eligibility?

– Because it will take at least 10 years to make the 120 qualifying payments necessary to receive PSLF, FSA has created a form that borrowers should submit to FSA and a process that borrowers should follow so that FSA can assist in tracking periods of qualifying employment and qualifying payments. 

– The form allows a borrower to get the employer's certification of employment while he or she is still employed at that organization or shortly after leaving. The process allows the borrower to receive confirmation of qualifying employment and the Direct Loan payment eligibility.

Student Loan Forgiveness – Public Service Loan Forgiveness• How can borrowers keep track of PSLF eligibility?

– While use of this form and process is not required, it is helpful to keep track of progress toward meeting the PSLF eligibility requirements. Borrowers should follow the steps below.

– Step 1 — Complete, with employer's certification, the Employment Certification for Public Service Loan Forgiveness form (PSLF Employment Certification) annually or whenever changing jobs.

– Step 2 — Submit the completed form to FedLoan Servicing, the PSLF servicer, following the instructions on the form.

– Step 3 — FedLoan Servicing will review the PSLF Employment Certification form, ensure that it is complete, and, based on the information provided by the employer, determine whether the employment is qualifying employment for the PSLF Program.

Student Loan Forgiveness – Public Service Loan Forgiveness• How can borrowers keep track of PSLF eligibility?

– Step 4 — If the form the borrower submits is incomplete or the employment does not qualify, FedLoan Servicing will notify the borrower and he or she will have an opportunity to provide additional information.

– Step 5 — If FedLoan Servicing cannot determine whether the employment qualifies, the borrower may be asked to provide additional information or documentation to help establish whether he or she was employed by a qualifying public service organization. This documentation may include an IRS Form W-2, pay stubs, or other documents from the employer that substantiate employment at the organization or documentation supporting the borrower’s employer's eligibility as a public service organization.

Student Loan Forgiveness – Public Service Loan Forgiveness• How can borrowers keep track of PSLF eligibility?

– Step 6 — If the borrower’s employment qualifies and some or all of the borrower’s federally held loans are not serviced by FedLoan Servicing, those loans will be transferred to FedLoan Servicing so the borrower will have a single loan servicer for all of his or her federally held loans. After the loans are transferred, earlier payments made to other servicers will be evaluated to see whether they are qualifying PSLF payments.

– Step 7 — FedLoan Servicing will notify the borrower whether the employment qualifies, and, if so, how many payments during the certification period were qualifying payments, the total number of qualifying payments made, and how many payments must still be made before qualifying for PSLF.

Student Loan Forgiveness – Public Service Loan Forgiveness• What should a borrower do after he or she becomes eligible for

PSLF?– After the borrower makes the 120th qualifying payment, he or she will

need to submit the PSLF application to receive loan forgiveness. The application is under development and will be available prior to the date when the first borrowers will be eligible for PSLF Program forgiveness, in October 2017. The borrower must be working for a qualified public service organization at the time he or she submits the application for forgiveness and at the time the remaining balance on the loan is forgiven. 

Student Loan Cancellation• Borrowers may have remaining balances cancelled after a certain

number of years in specific repayment plans– If borrowers repay under Income Based Repayment (IBR) for 25 years

and meet certain other requirements, any remaining balance will be cancelled.

– If borrowers repay under Income Contingent Repayment (ICR), any loan amount that remains after 25 years of payments will be discharged (forgiven).

– Borrowers may have to pay taxes on the amount that is discharged.

Resources• Public Service Loan Forgiveness Program

– PSLF Fact Sheethttp://studentaid.ed.gov/sites/default/files/public-service-loan-forgiveness.pdf

– PSLF Q&Ahttp://studentaid.ed.gov/sites/default/files/public-service-loan-forgiveness-common-questions.pdf

– PSLF Dear Borrower Letterhttp://studentaid.ed.gov/sites/default/files/public-service-employment-certification-borrower%20letter.pdf

– Instructions for Completing Employment Certification for Public Service Loan Forgivenesshttp://studentaid.ed.gov/sites/default/files/public-service-employment-certification-form-instructions.pdf

– Employment Certification for Public Service Loan Forgivenesshttp://studentaid.ed.gov/sites/default/files/public-service-employment-certification-form.pdf

Resources• Income-Based Repayment (IBR) Plan

– IBR Fact Sheet http://studentaid.ed.gov/students/publications/factsheets/factsheet_IncomeBasedRepayment.pdf

– IBR Q&Ahttp://studentaid.ed.gov/sites/default/files/income-based-repayment-common-questions.pdf

Contact Information

Dana KellyNational Trainer and Regional Director, Partner SolutionsNelnet Loan Servicingdana.kelly@nelnet.net

www.nelnetloanservicing.com