Forgiveness options exist for student loan debt

ITHIS WEEK’S QUESTION:

Answer: Not knowing how to deal with your debt is painful — and understandable. But there’s hope.

You might already know that loan forgiveness is available to publicsector workers and to those who choose an income-driven repayment plan. You may not know that you can get your loans canceled if your school closed while you were enrolled, it committed fraud, or you’re totally and permanently disabled.

We focus here on federal student loan forgiveness programs because private student loans generally have less flexible repayment options. Your best bet is to contact your lender directly if you’re having trouble making your payments. Also, except in the case of Public Service Loan Forgiveness and in some specific circumstances, you may be taxed on the amount forgiven.

Explore the options below, and check out studentaid.ed.gov for more details.

CLOSED SCHOOL DISCHARGE

If your college shutters while you’re enrolled or within 120 days after you leave a program without getting a degree, you can receive a closed school loan discharge, meaning the loans you took out to attend that school will be canceled. Recent closures of for-profit colleges including Corinthian Colleges, ITT Technical Institute and Marinello Schools of Beauty have put this option into the spotlight, says Debbie Cochrane, vice president of the Institute for College Access & Success.

The Department of Education recently announced automatic loan discharges for borrowers who were enrolled in a school that closed on or after Nov. 1, 2013, and who didn’t re-enroll elsewhere within three years. If your school closed before that period, you can apply for a discharge through your loan servicer. But you’re not eligible if you transferred your credits to a comparable program, Cochrane says, so make sure you meet the specific requirements before applying.

BORROWER DEFENSE TO REPAYMENT

A growing area of loan cancellation is called borrower defense to repayment, a provision of federal law that allows students to seek debt relief because their school committed fraud or misrepresented itself.

On Oct. 28, the Department of Education released final regulations to streamline the process for submitting a borrower defense to repayment claim.

Additionally, the department now has the ability to discharge groups of borrowers’ loans without an application when there’s evidence of a school’s sweeping misrepresentation.

If you think your school might have defrauded you, submit a claim to fsaoperations@ ed.gov along with the required accompanying documentation, available at studentaid.ed.gov. Online applications are also available for certain former students, says Jennifer Wang, director of the Washington, D.C., office of the Institute for College Access & Success. You can work with a lawyer or a nonprofit legal assistance organization to submit your claim.

TOTAL AND PERMANENT DISABILITY DISCHARGE

You can also have your remaining debt canceled if you have a total and permanent physical or mental disability and you’re unable to be gainfully employed. You must show documentation from the Department of Veterans Affairs, the Social Security Administration or a doctor.

“It’s something that not that many people apply for, even if they qualify,” says Jay Fleischman, a student loan lawyer.

After the government discharges your loans, it will monitor your finances and disability for three years. If you take out new student loans, earn more than a certain amount of money or no longer meet the Social Security Administration’s disability guidelines, you must resume your loan payments.

INCOME-DRIVEN REPAYMENT PLANS

Income-driven repayment is available to all federal student loan borrowers. It will slash your federal loan payments to a percentage of your earnings, and if you have no income, you’ll pay $0 and still keep your loans in good standing. You’ll also get your remaining balance forgiven after 20 or 25 years of payments, but it will be taxed as income. You can apply for the program on studentloans.gov.

JOB-BASED FORGIVENESS PROGRAMS

Public-sector workers can get federal loan forgiveness after 10 years of eligible employment. The main program, known as Public Service Loan Forgiveness, is available to full-time nonprofit and government workers with federal direct loans. The amount forgiven won’t be taxed.