Differences Between Student Loans Forgiveness, Cancellation, and Discharge

College education can get quite expensive and interest payments can explode rapidly. Managing household expenses with university fees can become difficult for many families. For this reason, student loans are a common way in the United States to fund post-secondary education. The total student debt in the US has amounted to a whopping $1.73 trillion. Both undergraduate, as well as graduate programs, are funded with loans. 

Broadly, there are two main types of student loans – federal student loans and private student loans. The federal loans are guaranteed by the federal government and often subsidized. On the other hand, private loans are not guaranteed by the government and have much higher interest rates. Due to their costs and tough terms, private loans should be taken as a last resort. For instance, when the federal loans don’t cover all the college expenses

What is Student Loan Forgiveness?

Forgiveness or discharge refers to the cancellation or waiving off of the student loan. Federal student loans can be forgiven, discharged, or canceled if the student qualifies for the respective criteria. The loan amount is completely or partially forgiven in case the application is approved. These plans are mostly for those in public service, military personnel, teacher loans, or if one has a disability. This form of student loan refinancing is not possible in the case of private loans. President Joe Biden has recently announced more forgiveness for students.

Forgiveness, cancellation, and discharge, what’s the difference?

The terms discharged, forgiven, and canceled are used interchangeably but they often have different contexts. These three terms are essentially just forms of student loan forgiveness plans but they are not identical. If your loan is waived off due to the nature of your job, it is called forgiveness or cancellation. If you no longer have to pay the loan due to some other specific scenarios, it is referred to as a Loan Discharge. Let’s discuss them in detail to get a better picture of the possible options of relief in loans. The recent Biden student loan program and its applications will also be discussed at the end. 

Student Debt Forgiveness (or cancellation)

Student loans can be forgiven or canceled if you are part of a particular service, such as the non-profit sector or the armed forces. These plans are considered a benefit of your service. Depending upon the approved plan, your loan may be partially or fully forgiven i.e. waived off.

Public Service Loan Forgiveness (PSLF) is such a program that allows for forgiveness if you have made at least 120 payments on your loan. It covers full-time employees who are in the army, emergency management, law enforcement, child education, and the government. 

Teachers are eligible for the Teachers Loan Forgiveness plan but they must fall under set economic criteria. The teacher should be a full-time employee for at least five years at a primary or secondary school that caters largely to students from low-income families. Similarly, medical graduates working in under-served areas also qualify for loan forgiveness.

Only direct loans by the federal government (William D. Ford Federal Direct Loan Program) qualify for student loan forgiveness. Loans by private lenders and other companies are not part of this program.

However, if you have the Federal Family Education Loan Program or the Perkins Loan, you are allowed to consolidate those debts into a single consolidation loan. The new loan can then qualify for public service loan forgiveness.

Student Loan Discharge

The term discharge is used differently as compared to the typical loan forgiveness. You are not entitled to a discharge because of your service, rather you get one because of some unfortunate circumstances. In loan forgiveness, you have to apply and wait for the approval, during which to keep paying the amounts of the loan. The approval may also not be for the full loan. Discharging of the loan results in immediate stopping of the loan payment and the remaining loan is ‘discharged’. It can also entitle the debtor to receive some loan payments previously made. 

Loans can be discharged in one of the following scenarios:

  • Permanent disability or death of the student
  • Closure of the school
  • Misleading on part of the school
  • False Certification Discharge

The first case is quite simple and is called the Total and Permanent Disability Discharge. For the second case, if your school closes during your studies or a few months after you withdraw, you are eligible to apply for the loan discharge known as Closed School Discharge. For the third one, if you believe that your school has misled you and broken certain laws, you qualify for a discharge, known as Borrower Defense to Repayment. The last scenario occurs when the school erroneously authorizes your eligibility for the loan.


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President Biden’s recent announcement for student debts

President Biden’s Loan program has been announced which has canceled about $10 billion in student debt. The breakdown of applicable forgiveness is below:

  • $5.8 billion of student loans for student loan borrowers with a permanent disability
  • $1.3 billion in student loan cancellation for student loan borrowers in March
  • $1.5 billion for the borrower defense to repayment process 
  • $1.1 billion student loans canceled through borrower defense to repayment.

The relief has been provided mainly to those with a disability or those misled by their institutions. It ends in January 2022. Biden plans to expand the relief to more students in the future by passing laws but currently, the relief is based on the current law. Members of the congress, as well as advocacy groups, have proposed to forgive $50,000 per borrower, to which Biden has responded that if he were to use his authority on this, the relief would not be more than $10,000.

The 2022 budget does have some relevant proposals for forgiveness, such as an increase in Pell Grants, tuition fee decrease in some colleges as well as new forgiveness plans. Currently, the relief focuses on a narrow segment of student loans but it may be expanded to cater to a more general audience.

A Final Word

As explained above, the difference between forgiveness or cancellation and discharge is just in the context the relief is provided to the student. Forgiveness is given to people with certain jobs such as teachers whereas a discharge is for those who face unfortunate circumstances specified above.

One last thing, do not stop paying your loans because you anticipate a wider loan cancellation under Biden’s program in the future. Until the law is enacted about any new forgiveness plan, the current plan covers about 1% of total student debtors. Check with the lender and stop only if the relief applies to you as well. It is uncertain what the federal government plans for the future. As of now, there is no forgiveness plan for private loans. So if you are on a private loan and looking for some relief, contact your lender to discuss any possible options of relief.


Reference Reading:


Mohammed Imran

Mohammed Imran

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SLFA is a private company and does not claim to be affiliated with any Federal, State, or Local Government agencies. People with student loan debt have the legal right to use an attorney or process federal student loan documentation on their own behalf without paid assistance. Our mission is to provide people with the credit repair, knowledge, information, and document preparation service they need to deal with all the financial decisions to find what they need and return to life effortlessly.

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