Loan Cancellation Options

Loan cancellation is a complete discharge of your debt because of errors made by the school, the lender or the government and depends on the type of loan borrowed.  Here are some examples:

  • Closed School
  • False Certification
  • Disability
  • Death
  • Unpaid Refund
  • Military or work-related cancellation

If you seek a disability discharge, however, you can’t obtain loan cancellation after the loans have been fully paid off.

Closed School Discharge

If you were enrolled at the time of the closure, you will obtain a loan cancellation, depending.  A complete cessation of all programs at the branch or school is typically required, however there are exceptions.

For Direct Loans, FFEL (Federal Family Education Loans) and/or Perkins Loans received at least partly by January 1st 1986 or later, a closed school discharge can be obtained if your school closes while you’re enrolled (even if you’re on an approved leave of absence) and you don’t finish the program (or you finish the program but don’t receive a degree or diploma).

Closed School Discharge While Being Withdrawn From School

Another way to potentially qualify for closed school discharge is if your school closes within 120 days from the time you withdraw.  If you withdraw more than 120 days from the time the school closes then you won’t qualify.

If you go on to complete a comparable program, then you won’t be eligible for closed school discharge (which also includes teach-out agreements and the transfer of coursework/credits).

Keep in mind, if you go on to another school and complete a similar program after discharge, you may have to return those funds.  A evaluation of the “comparable educational program” rules will be necessary.  

Also, if you were offered a “teach-out” and completed the program at another institution, you could still be eligible for loan cancellation.  An evaluation of whether or not the program was accredited and whether the “teach-out” rules apply to loan cancellation in your case would be required.

You can check the Department of Education’s website to see if your school is on their list of closed schools.

Be sure to continue to make payments while your student loan servicer is evaluating your eligibility for closed school discharge (after you submit the required paperwork).  All payments may be returned to you.

These rules are not set in stone as you may have experienced unusual circumstances in which case you may still qualify for loan cancellation.

Forgiveness through Income Based Repayment and Income Contingent Repayment (or Income Sensitive Repayment) is considered a form of cancellation.