Monday, January 26, 2015

Non-Bankruptcy Alternatives for Dealing with Government Student Loan Debt

            A federally guaranteed student loan can be very difficult to discharge in bankruptcy, but there are ways to obtain debt forgiveness and to discharge federally-guaranteed student loans outside the context of bankruptcy. (The information in this article, current on 11/30/2014, addresses only non-bankruptcy alternatives for government student loans—not private student loans.)

Q:       I got a federal student loan, but now I have a physical disability. Can my loan be forgiven?
A:        If you are a federally guaranteed student loan borrower with a William D. Ford Federal Direct Loan Program loan, a Federal Family Education Loan (FFEL) Program loan, a Federal Perkins Loan Program loan, or a loan through the Teacher Education Assistance for College and Higher Education (TEACH) Grant Program, you may qualify for a Total and Permanent Disability Discharge (TPD) through the Office of the U.S. Department of Education. To qualify:
·       a physician must certify that you cannot engage in any substantial gainful activity due to a medically determinable physical or mental impairment that can be expected to result in death, or has lasted, continuously, for at least 60 months or can be expected to last, continuously, for at least 60 months; or
·       the Secretary of Veteran Affairs must determine that you are unemployable due to a service-connected disability. 
            If your TPD request is approved, a three-year post-monitoring period will run from the date your loan was assigned to the Department of Education. During this three-year period, you cannot earn more than $15,730 (100 percent of the federal poverty guidelines for a family of two in 2014) and you cannot have obtained any new federal student loans. If you are a veteran and your disability is a 100 percent service-connected, then you are immediately eligible for a federal student loan discharge. 
             (For more information on this alternative for discharging your federal student loan, visit: 

Q:       Can I do some public service so that a portion of my federally guaranteed student loan is forgiven?
A:        Yes, a portion of your federally guaranteed student loan debt may be forgiven under the Public Service Loan Forgiveness (PSLF) Program, but only if you have a non-defaulted William D. Ford Federal Direct Loan Program (Direct Loan Program). Specifically, you may qualify for forgiveness of the remaining balance due on your Direct Loan Program loan after you make 120 qualifying payments while you are employed full-time by certain public service employers, including most local, state, federal, tribal government organizations, or 501(c)(3) corporations. Also, the amount of the debt that is forgiven is not taxable as income.
            The Direct Loan Program includes:
·       Federal Direct Stafford/Ford Loans;
·       Federal Direct Unsubsidized Stafford/Ford Loans;
·       Federal Direct PLUS Loans – for parents and graduate or professional students; and
·       Federal Direct Consolidation Loans. 
            If you took out loans under other federally guaranteed student loan programs, they may become eligible for forgiveness if you consolidate them into a Direct Consolidation Loan. However, only payments you make on the Direct Consolidation Loan will count toward the required 120 qualifying payments. (For more information on this alternative for discharging your federal student loan, visit: 

Q:       I defaulted on a federally guaranteed student loan. Is there anything I can do?
A:        Yes, you may receive a one-time chance to bring your loan out of default. Monthly payments can be reset to a “reasonable rate,” but you must make nine payments on time over a ten-month period. If you meet this requirement, your student loan can be restored to a pre-default status. That means your eligibility for deferment, forbearance, alternative repayments and Title IV aid would be restored and your credit report would be updated.  These federal loans may be eligible for this sort of “rehabilitation”: Federal Stafford Loans, Federal Perkins Loans, Federal PLUS (Parent Loans for Undergraduate Students), Federal Grad PLUS (PLUS loans for graduate and professional students), Federal Consolidation Loans, Federal SLS, Health Professions Student Loans, and Nursing Student Loans. (For more information on this alternative for restoring your federal student loan to a pre-default status, visit: 

Q:       Are there any other loan forgiveness and cancelation alternatives for a federally guaranteed student loan?
A:        Yes, these alternatives may be helpful if they apply to your situation:
·       a Closed School Discharge (if your school closes while you’re enrolled or soon after you withdraw);
·       a False Certification Discharge (if your school falsely certified your eligibility to receive the loan based on your ability to benefit from its training);
·       a Teacher Loan Forgiveness (if you have been teaching full-time in a low-income elementary or secondary school for five consecutive years, as much as $17,500 of your loans may be forgiven);
·       and a September 11 Survivors Discharge.                         

(For more information about these alternatives and others, visit:

This “Law You Can Use” consumer legal information column was provided by the Ohio State Bar Association. It was prepared by attorney Jeffrey S. Rosenstiel, a partner in the Cincinnati firm of Graydon Head & Ritchey LLP. Articles appearing in this column are intended to provide broad, general information about the law. Before applying this information to a specific legal problem, readers are urged to seek advice from an attorney.

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