Student Loan Discharge
In the case of the death of a borrower, every Federal Student Loan they carry will immediately be discharged. This debt is not considered part of their estate, nor will any assets from their estate be pursued by either the Department of Education or their loan servicer.
A parent who dies after having taken out a PLUS loan for their child—who is the student–will have their loan discharged. Again, the Department of Education and the loan servicer will accept the circumstances and not pursue the assets of the estate.
In the case of the loan being a Federal Perkins Loan, the student’s school will request a death certificate, which needs to be provided by either a family member or a legal representative to begin the discharge process. On the other hand, if the loan was a Direct Loan or a Federal Family Education Loan, the death certificate must be given to the loan servicer to get the process started.
Closed School Discharge
You are eligible for student loan discharge if you took out either a Direct Loan or a Family Federal Education Loan and your school unexpectedly close before you were able to complete your program.
This also applies in the case of any Federal Student Loans taken out to pay for your attendance of the school that closed.
If your school closed while you were under an approved leave of absence, you will still be considered an enrolled student and will still be able to qualify.
If you had withdrawn from school and it closed within 90 days of your departure, you are also still eligible.
Direct Loans or Family Federal Education Loans will not be discharged if your school closes more than 90 after your withdrawal, or if you are enrolled in a comparable degree program at another school. If you successfully graduate from this program and have already had your loan discharged, it is possible that you may be obligated to pay back your discharged loan.
If you have completed your program but did not receive a copy of your diploma or certificate of completion before the school’s closure, don’t be alarmed–you still qualify.
Your loan servicer can provide you with an application if you believe you qualify for this type of forgiveness program. In most cases, you will need to show both academic and financial records to prove that you were enrolled in a degree program with that school. If you did not receive a final transcript from the school before it closed, as happens sometimes, you can contact the state government licensing department and request information regarding the school’s transcripts.
If you are absolutely incapable of obtaining a transcript, you still have options. Gather every document you can that shows you were enrolled in the school. We can use any information that you have in order to secure a student loan discharge.
A student or parent can apply for a bankruptcy discharge, but it is not an easy process.
First, you need to prove to the court that repaying the student loan will cause undue financial hardship on you and your dependents. Should you file for bankruptcy under Chapter 7 or Chapter 13, this decision will be made via Adversary Proceeding in bankruptcy court. The judge will use an extensive test to make his decision, consisting of three parts—and if you cannot meet all three, you will not qualify for a bankruptcy discharge.
The judge looks for three main factors in his decision:
- You will not be able to maintain a minimal standard of living for yourself and your dependents if you are forced to pay your loan.
- You are able to show evidence that this financial hardship will continue for an extended period of the lifetime of the loan repayment.
- You have made a considerable effort in good faith to repay the student loan before filing for bankruptcy. This is typically a period of five years or more.
If your request is approved and your loan is discharged due to bankruptcy, all attempts at collecting payment will stop immediately and you will no longer be required to make payments. If your bankruptcy had previously made it difficult to qualify for further financial aid, you will now be able to receive it again. If you eventually wish to return to school, or send your children to school in the future, this is a very significant detail.