Comparing Student Loan Discharge and Student Loan Forgiveness

    The terms “forgiveness” and “discharge” are used interchangeably with regard to student loans for good reason: They both mean you are no longer responsible for what is left of your debt.

    However, there are different conditions and circumstances that qualify you for one or the other.

    Forgiveness is applied to situations where the borrower chooses to perform a service for the community and the lender (typically the government) deems that job worth offering loan forgiveness. The job must be full-time and the borrower must make 120 on-time payments before he can apply for loan forgiveness. Jobs like teaching, military service, police, firefighters and social work would qualify for loan forgiveness.

    A discharge situation is seldom by the borrower’s choosing. It involves drastic circumstances, such as death, disability or some dramatic event such as the college closing before a student finishes his/her education. Those situations could qualify a borrower for discharge.

    Forgiveness and discharge also vary, depending on which type of federal loan you used for college. Below is a breakdown of where each one applies.

    Discharge

    As mentioned, discharge of a student loan applies to severe situations. Some of the categories where discharge applies include: death or total and permanent disability; school closing; bankruptcy (this is rare); disaster situations (surviving spouses of men and women killed in the 911 terrorist attach);  fraud (if someone fraudulently used your name to obtain a loan); or medical (someone who suffers from severe physical or mental impairments).

    It is necessary to apply for either forgiveness or discharge of your student loan debt and there is no guarantee that it will be granted. Borrowers must keep very good records that document the amount of time they worked and the job they performed to prove their eligibility.

    It is also important to note that if you receive either forgiveness or discharge from your student loans, the amount that was canceled could be deemed income and be subject to federal taxes. It is best to check with the IRS to see how the tax rules apply to your situation.

    Forgiveness

    The government offers loan forgiveness programs as an incentive to fill jobs that are typically low paying or deal with people in disadvantaged situations. The major programs to obtain forgiveness are through the Public Service Loan Forgiveness, Teacher Loan Forgiveness and Perkins Loan Forgiveness.

    Anyone working fulltime at a city, county, state or federal government agency or a non-profit organization with 501 (c)(3) status is eligible for Public Service Loan Forgiveness. To qualify, you must make 120 payments (10 years) on your student loan while working full-time for a qualified agency or organization. If approved after the 120 payments are made, the balance of your student loan is forgiven.

    To qualify for a Teacher Loan Forgiveness program, you must teach full-time in a low-income elementary or secondary school for five consecutive years. After five years, you could have as much as $17,500 of your student loan forgiven.

    Students who had Perkins Loans can get as much as 100 percent of the loan forgiven, depending on which job they take in the community. Police officers, firefighters, librarians with a Master’s Degree, lawyers working in the public defender’s office, people who work with high-risk children or families, workers at state licensed pre-kindergarten schools, workers in Head Start program and full-time employees at several other community service jobs qualify for up to 100 percent forgiveness.

    Members of the military who started service after 2008 also qualify for up to 100 percent forgiveness (50 percent for those who enlisted before 2008) and members of the Peace Corps or AmeriCorps qualify for up to 70 percent forgiveness on their Perkins Loans.

    Bill Fay

    Bill Fay is a journalism veteran with a nearly four-decade career in reporting and writing for daily newspapers, magazines and public officials. His focus at Debt.org is on frugal living, veterans' finances, retirement and tax advice. Bill can be reached at bfay@debt.org.

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