Federal Cancellation

PLEASE NOTE…..

We are currently updating our website to reflect recent major changes to relief options for federal student loan borrowers, including President Biden’s announcement of widespread student debt cancellation on August 24, 2022. Thank you for your patience while we update our website. In the meantime, please check our blog including what borrowers need to know about the student debt cancellation announcement, and studentaid.gov for information about managing your federal student loans from the U.S. Department of Education, including information about the payment pause and about President Biden’s announcement that many borrowers will be eligible for $10,000 to $20,000 of student loan cancellation.

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Federal student loans can be cancelled in certain circumstances. In some cases, you can cancel a loan due to serious problems with the school you attended.  This is not a general cancellation simply because you didn’t like your school.  You must meet the specific criteria of the school-related discharge.  Other cancellations are available if you work for a certain period of time in a public service job.  This includes military service members.  Another category is for borrowers with serious disabilities or after a borrower dies so that the debt is not passed on to the borrower’s estate.  You must apply for loan cancellation using the government forms. There is an important exception to this rule for certain borrowers eligible for closed school automatic discharges.

You may qualify regardless of whether your loan is current or in default.  You are entitled to these cancellations by law, but you must meet very specific requirements to get this comprehensive relief.  A successful cancellation not only makes the loan obligation go away, but in most cases, the government must also give back any payments you have made (whether voluntarily or involuntarily) and help clean up your credit.  This is the most complete relief you can get.

The federal loan cancellations described here are available outside of the bankruptcy process.  You can also cancel your federal loan in bankruptcy.  This is a difficult process, but not impossible. You must prove “undue hardship” in the bankruptcy court to get a bankruptcy discharge of your federal loan.

There may be tax consequences associated with some of these cancellation programs.  Loan amounts cancelled through the job-related or school-related cancellations should not be considered taxable income.  Other cancellations may be taxable income.  However, you may not have to pay taxes.  For example, you may be able to claim insolvency status using I.R.S. Form 982.  It is a good idea to consult a tax professional for more information.