Debt Discharge Options
If you, the borrower, die, then your federal student loans will be discharged. If you are a parent PLUS loan borrower, then the loan may be discharged if you die, or if the student on whose behalf you obtained the loan dies.
The loan will be discharged if a family member or other representative provides a certified copy of the death certificate to the school (for a Federal Perkins Loan) or to the loan servicer (for a Direct Loan or FFEL Program loan). For more information, contact 844-236-3332.
Student Loan Discharge in Bankruptcy
This is not an automatic process—you must prove to the bankruptcy court that repaying your student loan would cause undue hardship.
If you file Chapter 7 or Chapter 13 bankruptcy, you may have your loan discharged in bankruptcy only if the bankruptcy court finds that repayment would impose undue hardship on you and your dependents. This must be decided in an adversary proceeding in bankruptcy court. Your creditors may be present to challenge the request. The court uses this three-part test to determine hardship:
- If you are forced to repay the loan, you would not be able to maintain a minimal standard of living.
- There is evidence that this hardship will continue for a significant portion of the loan repayment period.
- You made good-faith efforts to repay the loan before filing bankruptcy (usually this means you have been in repayment for a minimum of five years).
Your loan will not be discharged if you are unable to satisfy any one of the three requirements. If your loan is discharged, you will not have to repay any portion of your loan, and all collection activity will stop. You also will regain eligibility for federal student aid if you had previously lost it.
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Federal Loan Forgiveness Evaluation
Closed School Student Loan Discharge
You may be eligible for discharge of your Direct Loans and FFEL Program loans under either of these circumstances:
- Your school closes while you’re enrolled, and you do not complete your program because of the closure. Any federal student loan obtained to pay your cost of attendance at that school could be discharged. If you were on an approved leave of absence, you are considered to have been enrolled at the school.
- Your school closes within 90 days after you withdraw.
You are not eligible for discharge of your Direct Loans or FFEL Program loans if your school closes and any of the following is true:
- You withdraw more than 90 days before the school closes.
- You are completing a comparable educational program at another school. If you complete such a program at another school after your loan is discharged, you might have to pay back the amount of the discharge.
- You have completed all the coursework for the program, but you have not received a diploma or certificate.
You might need your academic records if you plan to attend another school and want to have your coursework at the closed school taken into consideration. So it will be important for you to obtain your academic and financial aid records if your school closes.
If you think you may qualify for a Student Loan Discharge, contact CLASS Financial at (844) 236-3332.
You may be eligible for a discharge of your Direct Loan or FFEL Program loan in these circumstances:
- Your school falsely certified your eligibility to receive the loan based on your ability to benefit from its training, and you did not meet the ability to benefit student eligibility requirements.
- The school signed your name on the application or promissory note without your authorization or the school endorsed your loan check or signed your authorization for electronic funds transfer without your knowledge, unless the proceeds of the loan were delivered to you or applied to charges owed by you to the school.
- Your loan was falsely certified because you were a victim of identity theft.
- The school certified your eligibility, but because of a physical or mental condition, age, criminal record, or other reason you are disqualified from employment in the occupation in which you were being trained.
Unpaid Refund Student Loan Discharge
You may be eligible for a discharge of your Direct Loan or FFEL Program loan if you withdrew from school, but the school didn’t pay a refund that it owed to the U.S. Department of Education or to the lender, as appropriate. Check with the school to see how refund policies apply to federal aid at the school.
Only the amount of the unpaid refund will be discharged. You may qualify for this partial discharge whether the school is closed or open. Call (844) 236-3332 to see if you qualify.