Administrative Discharges Federal Student Loans
Various administrative discharges eliminate the borrowers repayment obligation, for some, or all of their federal student loans. A federal student loan can be completely discharged, if the borrower becomes totally or permanently disabled, for false certification of the attending school, the school closes, or the borrower has an unpaid refund. These administrative discharges are not limited to borrowers who are in default, borrowers in good standing are eligible to have their loans discharged, if they meet the qualifications. So, let’s discuss a few ways you can have your student loan discharged.
Adam S. Minsky, Esq. established the first law firm in Massachusetts devoted entirely to assisting student loan borrowers, and he remains one of the only attorneys in the country with a practice focused exclusively in this area of law.
In this CLE class video clip, Adam explains administrative discharges of your federal student loans.
You can watch the complete Student Loan Debt Law CLE class here:
Student Loan Debt Law CLE
First up, disability discharge. The department of education has placed stringent guidelines for this type of federal student loan discharge, though have made the application process easier. Basically, borrowers must show total and permanent disability, for at least 60 months, that prevents the borrower from obtaining any substantial, gainful employment.
Borrowers’ application is reviewed and processed by the US Dept of Education’s disability servicer, NelNet. Borrowers can expect a three year monitoring period. Loan can be reinstated if borrower ceases to be disabled, or borrower earns employment income in excess of 100% of poverty level for family of two.
The federal government issues a 1099-C, cancellation of debt forms, which would require the borrower to report the canceled debt as income on the borrowers tax return. Reporting a large discharged loan, can cause a large tax debt, unless the borrower can claim certain tax exemptions. Due to this, it is best to consult with an accountant to see if a student loan discharge is feasible for their financial situation.
Are there disability discharge options for private school loans? Yes, they are available, though not as with the federal discharge options, and can carry a large tax debt as well.
School related discharges can be acquired if the borrower did not have a high school diploma or GED. Also, if the school failed to give a borrower an entrance exam to test borrowers’ ability to benefit from their education. If the borrower’s school administered an exam, yet the exam is faulty, or had problems, there may be a case to make on discharging the school loan on this basis.
If the school falls into a disqualifying status, or looses their certification, at the time of enrollment, the borrower would then, not have to meet the legal requirements for employment in the occupation for which they were being trained.
False certification can also be a basis for student loan discharge. Unauthorized signatures, or unauthorized payments, where the school forged borrowers name on the loan papers, or check endorsements. This is very limited and only applies if the unauthorized signature by an agent of the school. This is very difficult to prove, and borrower will have to submit a substantial amount of supporting documentation to prove their case.