Yes, it is true. Although it can be very difficult to discharge a student loan through bankruptcy, there are discharge procedures for federal loans that can really come to your rescue. This is called an "Administrative Discharge."
Some can happen after 25 years (as with Income Based Repayment and Income Contingent Repayment programs), while others after only 10 (such as the Public Service Loan Forgiveness program). But there are others that can give more immediate relief.
Types of Administrative Discharge
Death. Yes, if you die, the loan dies with you. The Department of Education will not come after your estate. This is true of the student, or the parent with a PLUS loan.
Disability. This is the most commonly known discharge. The guidelines are strict, in that you must be totally and permanently disabled to qualify. As for a Social Security Disability Award, that will not count until July of 2013. In addition, a veteran that receives a disability discharge from the military automatically qualifies.
Closed School. This is useful where a school's closure prevents you from completing the course of study. However, there are a couple of qualifications:
- You must have been enrolled or withdrawn within 90 days of the closure; and
- You must not have completed a similar course of study at another school with credit transferred from the closed school
False Certification by School. If the school falsely certifies a federal student loan, the loan can be discharged. For example:
- a truck driving school certifying a loan for a blind student
- forging or altering a loan note or check endorsement
- certifying a borrower who failed the school's entrance exam
- identity theft
Unpaid Refund. Schools are paid directly by the Department of Education. If the total cost of enrollment is less than the loan, and the difference is not refunded to the student or Department of Education, then that amount is discharged.
So What Do I Do?
If you live in southern New Jersey and would like to consult with me on your loans and getting an administrative discharge for them, please feel free to call my office at 856-432-4113 or contact me through this site to schedule an appointment in my Woodbury office to discuss your case.
If you would like more information about student loans, you can dowload my free book, I Graduated; Now What? A Guide to Dealing with Your Student Loans.