The Difference Between Discharging a Loan and Loan Forgiveness

Flickr user Brett Weinstein

When it comes time to repay your student loans, you may be curious about the ways to either discharge (or cancel) or forgive your loan. While discharging and forgiving are both ways of “canceling” loans, they are, in fact, different from one another.

Discharging a Loan

It is quite difficult to get a loan discharged and very few will meet the criteria to discharge federal loans and even fewer for private loans. In fact, very few may actually want to meet most or any of the criteria at all. In most cases, discharge tends to happen due to life changing events.

One way is if you discover that your school was false in some way when it came to federal student loans. This could be either because you did not actually meet the eligibility requirements and the school said you did, or if the school signed your name on any application that you did not consent to. In a similar vein, you can have a loan discharged if you are the victim of identity theft.

For both federal and private loans, you may also be able to discharge if you have been permanently disabled or in some rare cases where you declare bankruptcy.

Depending on your situation and if you’re approved for the discharge, you may receive a refund from the Department of Education for any federal loans if they determine your previous payments should be returned as well. Also, if you previously defaulted on the loan (stopped paying) that is now discharged, you may be able to get the default erased from your credit. You will become eligible again for other federal student aid as long as you don’t have any other defaulted loans.

If your application for discharge is denied, you will still be responsible for the loan.

Loan Forgiveness

Student loan forgiveness is another way to cancel your debt, but it has more to do with your work or efforts after graduation. There are a few ways to go about this including the Teacher Forgiveness Program or the Public Service Loan Forgiveness Program.

The Teacher Forgiveness Program allows you to forgive up to $17,500 of any Federal Stafford Loans you took out (or all or part of Perkins loans as mentioned above). You will qualify for this program if you work as a teacher for 5 years in a row, full time, and at low income elementary or middle schools.

The Public Service Loan Forgiveness Program is for students who took out William D. Ford Federal Direct Loans. After working full time in public service and making 120 loan payments, you can qualify for outstanding loan forgiveness.

Loan forgiveness and discharge are both ways of “canceling” a loan, but they do have very different requirements. If you don’t qualify for either and are having trouble paying back your loan, you should look into deferment, income repayment plans, or other options.

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Hilary Cairns

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