A loan that a person takes when he is studying is called a student loan.
The kind of student loan that the person takes will have a direct bearing on that person’s life long after he leaves his school.
A loan entails a serious commitment to repay. Any default in the repayment of the loan can adversely affect his credit rating.
That is why it is highly recommended that the loan is well deliberated upon.
The borrower must read the fine prints properly and must be well aware of the various repayment options that are available to him. Once he is out of the college he must start to repay his loan.
Having said all that, a loan can still be forgiven, cancelled and discharged. What this means is that the borrower can be absolved from repaying his loan. There are certain special circumstances only which can absolve the borrower from this financial commitment. Discharge may be defined as the releasing of the borrower of the loan from his obligation of repayment.
Here’s a look into the circumstances that can entitle the borrower to claim a discharge:
Total and Permanent Disability Discharge (TPD Discharge):
A total and permanent disability f the borrower can entitle him to a discharge of his student loan. The loans included are direct federal loan, the Federal Family Education Loan (FFEL) and federal Perkins Loan. The borrower must provide complete information regarding his permanent disability to the Education Department of the Government of the United States.
The department will evaluate the furnished information and determine whether the disability is a total and permanent one. The department is the authority which will determine whether the person with the disability qualifies for the loan discharge or not.
The borrower may show his disability in the following ways:
FAQ’s regarding discharge due to TPD.
What kind of doctor can certify total and permanent disability?
A physician who is a doctor of medicine (M.D.) or a doctor of osteopathy (D.O.) and fully licensed to practice medicine in the United States can certify for total and permanent disability.
Is the proof that there is receipt of social security benefit enough for claiming TPD?
Not necessarily. The fact does not necessarily mean that the borrower is eligible for a discharge. The final authority is the department of education which will decide the matter after due perusal of all the relevant documents.
With the borrower’s death, his loan gets discharged. If the loan preferred is a federal Parent PLUS loan, then the loan will be discharged when the parent passes away or with the student’s unfortunate death.
The family member of the deceased must produce a copy of his death certificate duly signed by the necessary authority. The certificate of death must be furnished at the school office of the borrower where he was studying. The loan service officer may also require a copy to file for a discharge of the loan.
Discharge due to bankruptcy of the borrower:
This discharge of loan is a deliberate process where the borrower will file an insolvency suit in the relevant court. The borrower has to prove beyond any reasonable doubt to the bankruptcy court that repayment of the student loan will cause him undue hardship. This will be particularly important if the borrower files a Chapter 7 or Chapter 13 Bankruptcy of the US Civil Code read along with the United States Bankruptcy Legislation.
The creditors should challenge the premise that the repayment of the loan will put him in a tight corner. The court however uses a three point test to determine if the borrower is indeed eligible for this discharge or not.
The court has to make sure that there is some locus to think that the borrower is not in a position to repay his loan and therefore discharge is warranted.
False certification of student eligibility:
The student loan may be discharged if the school that the borrower attended had falsely certified the students’ eligibility to receive the loan only to benefit from the loan. The borrower has to prove that he did not meet the eligibility criteria of the course at all.
The discharge can also be claimed in the circumstance that the school had signed the application and the promissory note without any authorization from him. This can only be possible if:
The discharge can be claimed if the borrower has been a victim of identity theft wherein his details have been stolen and an application is made as if on his behalf and a loan has been sanctioned in his name. This is a lawful defense and in most cases, the courts discharge the loans almost immediately.
Another defense for claiming discharge for loan is that the school had certified the borrower as eligible and the loan was sanctioned but due to subsequent circumstances the borrower is not qualified for employment in the field that he is trained. The subsequent conditions will mean and include any physical affliction, a mental condition, and age, any crime that the borrower committed.
He may have also served a prison sentence. This is an inclusive clause and it can include any defense that the court may deem fit for the discharge of the loan.
Unpaid refund discharge:
The borrower can claim discharge of the loan if he withdrew from the school but the school evaded payment of refund to the Education Department in the US.
Perkins loan cancellation and discharge:
Every society has a need for professionals and volunteers who can chip in with their time and energy to help the needy and the disadvantaged. In the US, if the borrower of a student loan can claim a discharge for his loan if he performs certain types of public services and classified type of economic activities,
For every completed year of service, a certain percentage of his loan amount will be discharged. The total percentage of dischargeable loan depends again on the kind of the activity that he performs. The classifies activities are
There is no formal procedure for applying for a discharge of the loans under the Perkins Loan Cancellation Program of the US. The borrower must contact the school where he studies for further information on it and also to determine if he is entitles to any discharge.
School closure discharge:
If the school where the student is doing his course closes down or files for bankruptcy, then the borrower has a right to claim for a discharge. However due to any reasons if the discharge is denied to the student then he must contact the state licensing agency and ask for tuition recovery fund or a performance bond that will cover the damages caused due to the closure of the school.
If the school has filed for insolvency then the student must also file a claim in the bankruptcy procedure in the court as a party. The borrower may consult an attorney who is specialized in this type of case work in order to get a rightful discharge.
The procedure for filing for a discharge:
Like all government procedures, getting a discharge for your student loan will also warrants a lot of documentation.
Discharge of the private student loans – challenges
Prior to 2005, private loans were easier to get discharged on the defense of ‘bankruptcy’. But after the government lobbied to bring about amendments to the bankruptcy law it has become difficult to get a private loan discharged. In order to prove bankruptcy, the onus lies on the borrower to prove that repayment is causing him ‘undue hardships’.
The term is very vague and the judgment varies according to the facts and circumstances of each case. The court applies the Brunner test where it determines if the person will go through hardships if he repays. The court has to be satisfied that the bankruptcy will continue for the entire period of repayment of loan and that the borrower has made an effort to pay bonafide towards the loan at least for a period of five years.
Statistics show that a discharge on federal loan is relatively easier to get than a discharge on a private student loan. A discharge on the basis of bankruptcy is not automatic; the borrower has to file a petition for it in the relevant Civil Court.