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Six Things You May Not Have Known About Student Loan Forgiveness

Mar 24, 2013 Jennifer Williamson, Distance Columnist | 0 Comments

You may already know that you can get your federal student loans forgiven under some circumstances—for example, if you work in a public service position for a long period of time. But there are other ways you can get your student loans discharged—and some unexpected consequences for doing so. Here are just a few things you may not have known about student loans.

You can get your loans forgiven if you qualify for a disability discharge

The federal government will cancel your loans for you if you qualify for what’s called a “total and permanent disability” discharge, or TPD. But it’s not easy to qualify. You need to be unable to perform any “substantial gainful
activity” including physical or mental  activities because of a
condition, illness or injury that has lasted at least five years,
can be expected to last five more, is likely to result in
death, or was incurred in military service.

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You can get your loans discharged if your school closes

What happens if your school closes right after you’ve taken out a federal loan to attend? If you can’t complete your program of study because of the closure, the federal government will cancel any loans you took out to pay tuition at that school. If you were on an approved leave of absence during the closure or the school closes within 90 days after your withdrawal, you can also get some of your loans forgiven.

See Also: Top 10 Online Colleges and Universities

You can get your loan discharged if you don’t meet “ability to benefit” standards

If you don’t have a high school diploma or GED, you can still go to college at some schools—if you pass an Ability to Benefit (ATB) test. In the past, students who passed the test were eligible to receive federal aid to go to college; in 2012, however, the government stopped allowing students who passed the ATB to receive federal loans.

Even so, if you took out a loan after passing the ATB test under the old rules, and it’s later discovered that you in fact didn’t pass the test and your school falsely certified your ability to benefit to the federal government, you may be eligible for a loan discharge.

In addition, if the school certified your ability to benefit but you are disqualified from working in the profession you’re training for due to an illness, injury, disability, criminal record, or another valid reason, you may also be eligible for a discharge.

You can get your loans discharged if you never authorized payment

If your school signed your name on a promissory note or application without your permission, endorsed a loan check for you, or signed an authorization to transfer funds automatically from your bank account without your knowledge or permission, you may be eligible for a loan discharge—unless the funds are going to money you owe the school or you already received the loan proceeds.

You can get your loan discharged if someone else took it out in your name

Identity theft happens—and if you were a victim of it, you can get any student loans taken out in your name discharged if they were taken out by the identity thief.

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You can get your loan discharged if your school didn’t pay its refund

If you withdrew from your traditional or accredited online degree program and it didn’t pay a refund of tuition to the US Department of Education or the private lender, you may be eligible for a discharge of some loans in the amount of the refund owed.

You may be taxed on your discharge amount. If you receive a discharge on your student loans, the amount you’re forgiven may be considered taxable income by the federal government.  That’s true even if you get your loans discharged as a result of a disability.


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