Understanding Student Loan Cancellation Programs

Student loan cancellation programs, also known as student loan forgiveness programs, are programs that cancel all student loan debt that the college graduates still own, provided they meet certain conditions are requirements. Such programs are usually limited to federal student loans. Under those programs, student loans can be canceled either partially or in full. They can be canceled because of disability, closed schools, bankruptcy or because the borrower agreed to do a certain job or perform a certain type of volunteer service.

Bankruptcy Based Loan Cancellation

This is a rarely used option, but it is worth mentioning. The student loans may be canceled in case of bankruptcy provided the bankruptcy court rules that continuing to pay it would place undue hardship on the borrower.

Closed School Based Loan Cancellation

The student loans are canceled if the college or university where the borrower was enrolled was closed before he or she could complete a graduate program. This only applies to loans that were issued after January 1, 1986.

Disability Based Loan Cancellation

If the borrower suffered a total or permanent disability, his or her student loan is canceled. For the purposes of the cancellation program, permanent disability is defined as a disability that prevents the borrower from doing any type of job for more than sixty days in a row.

Public Service Loan Cancellation Program

Borrowers who made 120 monthly loan payments after October 1, 2007 are eligible for loan forgiveness if they work full-time in certain public service jobs. This program applies to direct federal loans.  Federal Family Education Loan Program (FFEL program) loans can also qualify if they are consolidated with at least one direct loan.

For the purpose of the Public Service Loan cancellation program, public service jobs are jobs that fall under the following categories:

  • Government jobs - jobs with agencies and organizations that are part of Federal, state, local, or tribal government structures. This includes police, fire fighters, city employment services, etc.
  • Public children's service agency jobs - jobs with organizations that provide public services for high-risk children in low income communities. This can include programs that aren't specifically geared towards high-risk children, but such help should be one of the services they provide on day-to-day basis.
  • Private non-profit jobs - jobs with non-profit businesses that provide any kind of public services. This may include anything from public health clinics to public libraries. Jobs for religious organizations fall under this category so long as it involves any of the organization's religious activities.

Volunteer Loan Cancellation

You may be eligible for loan cancellation if you volunteer for one of the following three programs:

  • AmeriCorps - under federal law, serving for up to twelve months in this organization is an equivalent of doing a public service job. The loans may be called conditions for loan forgiveness and the types of loans that may be forgiven are the same.
  • Volunteers in Service to America (VISTA) - this anti-poverty organization is currently under the AmeriCorps umbrella, so anyone who volunteers for it qualifies for student loan forgiveness under the same conditions as a regular AmeriCorps volunteer. However, only 70 percent of their loan may be canceled.
  • Peace Corps - borrowers who have a Perkins loan will have 15 percent of the loan canceled for each year of service.

Teaching Based Perkins Loan Cancellation

Borrowers with Perkins loan are eligible for partial loan forgiveness if they become full-time teachers in public schools that serve predominantly low-income areas. This program forgives 15 percent of the loan for each of the first two years, 20 percent for each of the third and fourth year and 30 percent for the fifth year. This program is only available for borrowers who graduated after October 7, 1998.

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