Student loans are the second largest portion of all consumer debt in the United States, behind only mortgages.  But, because of the special legal protections granted to student loans, they are notoriously difficult to reduce or eliminate, unlike almost any other type of debt.  Still, even though student loans are more difficult to deal with than other debt, borrowers who are overwhelmed with student loan debt have many options available to them for reducing or eliminating student loans.

In this guide, we provide a detailed review of student loans and your options in managing and ultimately eliminating them.  We will cover the following topics: what is a student loan, the different types of student loans, your options in managing your loan payments, and your options in eliminating student loans through forgiveness, settlement, or bankruptcy discharge.  As you read this guide, please keep in mind that it is intended to be informational only, that every situation is unique, and that you should always consult with a legal professional with respect to your specific situation.

What is a Student Loan?

The term “student loan” in common usage can apply to many different loans or types of financial assistance.  But when we talk about student loans from the legal perspective, the definition is much narrower.  In simple terms, a debt is a student loan in only three circumstances.

First, a debt is a student loan if it is made or guaranteed by the government, or funded by the government or a nonprofit institution.

Second, a debt is a student loan if it is incurred to pay education expenses at a school that is eligible to process federal student aid and is appropriately accredited.  There are several additional requirements that must be met, including that the debt must be incurred reasonably close to the time that the education expenses were incurred.

Third, if you have to repay a scholarship or a stipend because you did not fulfill the requirements associated with the scholarship or stipend, then it is treated as a student loan.  Although this type of debt is treated the same as a student loan, it is not a true loan.  Because of this, this category of student debt, and scholarships in general, are outside the scope of this guide.

Why does it matter if a debt is a student loan?  It matters because any education-related debt that falls outside the above definition of student loan is treated very differently.  Basically, any debt that does not meet this definition of student loan is treated like a credit card, and is much easier to deal with.

What is Not a Student Loan?

Any loan, financial assistance, or other debt, that does not fall within one of the three categories of student loans, is not a student loan.  This is so even if the lender tells you that the debt you owe is a student loan, educational debt, or anything similar.

Some examples of what is not a student loan are:

  • Unpaid tuition owed to the school;
  • Salary advances to pay off student loans;
  • Loans for training at schools that are not qualified institutions (examples are a truck driving school or a beauty school, unless the school is a “qualified institution” under federal law, which is not common);
  • loans taken out during medical residency programs;
  • loans taken out to prepare for licensing exams (for example, medical board exam, lawyer bar exam, real estate license exam, etc.).

There are many more types of debt that do not qualify as student loans, but they are too numerous to list here.

Sometimes it may be difficult to determine at first glance whether a loan qualifies as a student loan, especially if you did not attend a conventional college or university, or you did not obtain the loan from a conventional lender.  In such cases it is best to consult a legal professional who will help you make that determination.  But understanding the different types of student loans and how they are made can help you make the initial evaluation.  That is what we will discuss next.

Types of Student Loans

All student loans can be broken down into two general categories: federal loans and private loans.  Federal loans are either issued by the federal government, or are insured or guaranteed by the federal government.  Some federal loans are issued or managed by private lenders, but are issued through federal loan programs.  The federal government plays some role in all federal loans.  Private loans are issued by private lenders through their own loan programs without the involvement of the federal government.

Federal Student Loans

Federal loans are issued through one of several federal loan programs.  The following is a summary of the major federal loan programs, along with the loans issued through each program:

  • William D. Ford Federal Direct Loan Program
    • This is the current federal loan program, and the loans issued under this program include the following:
    • Direct Subsidized Loans for undergraduate students who demonstrate financial need.
    • Direct Unsubsidized Loans for undergraduate, graduate, and professional students, but eligibility is not based on financial need.
    • Direct PLUS Loans for graduate or professional students and parents of dependent undergraduate students, eligibility is not based on financial need. These loans are either Parent PLUS Loans or Grad PLUS Loans.
    • Direct Consolidation Loans allow combining all eligible federal student loans into a single loan with a single loan servicer.
  • Federal Family Education Loan (FFEL) Program
    • Under this program, private lenders made education loans guaranteed by the federal government.
    • The loans under this program include Subsidized Federal Stafford Loans, Unsubsidized Federal Stafford Loans, FFEL PLUS Loans, and FFEL Consolidation Loans.
    • No new loans under the FFEL Program have been made since June 30, 2010, but many people who attended school in 2010 or earlier still have these loans.
  • Federal Perkins Loans
    • These were federal student loans for undergraduate and graduate students with exceptional financial need.
    • Final disbursements on Perkins loans were made by June 30, 2018, and no new Perkins loans may be made, but many people may still have these loans.
  • Health Education Assistance Loan (HEAL) Program Loans
    • These were federally-insured loans for graduate students in the medical fields.
    • The HEAL Program was discontinued on September 30, 1998, and no new HEAL loans may be made, but many people may still have these loans.

Federal loans are managed by one of several loan “servicers”—companies that handle the day-to-day management of the loans, such as issuing invoices and bills, collecting payments, making sure the payments are properly applied, etc.  The servicer is the entity that you will deal with when you need assistance with you loan.  The following are the servicers you may deal with if you have a federal loan:

  • Aidvantage
  • Great Lakes Educational Loan Services, Inc.
  • Edfinancial (HESC)
  • Nelnet
  • OSLA Servicing
  • ECSI
  • Default Resolution Group
  • Navient (this servicer handles some legacy FFELP loans)
  • MAXIMUS Federal Services, Inc. (this servicer handles defaulted student loans)

If you see the name of one of the above companies on your billing statements, you are likely dealing with a federal loan.

Another party involved with some federal student loans is called a “guaranty agency.”  The guaranty agency insures the loan and pays the lender if the borrower defaults on the loan.  The guaranty agency then takes over the loan and collects the defaulted loan from the borrower.  In most cases, you may not even know the guaranty agency for your loan, but if your loan defaults, you may have to deal with the guaranty agency directly or indirectly.  The following are the main guaranty agencies for federal loans:

  • American Student Assistance
  • College Assist
  • Florida Department of Education
  • Kentucky Higher Education Assistance Authority
  • Michigan Guaranty Agency
  • National Student Loan Program
  • New Mexico Student Loan Guarantee Corporation
  • North Carolina State Education Assistance Authority
  • Oklahoma College Assistance Program
  • Pennsylvania Higher Education Assistance Agency
  • Trellis Company (Texas Guaranteed Student Loan Corporation)
  • Vermont Student Assistance Corporation
  • Ascendium Education Solutions, Inc.
  • Education Credit Management Corporation (ECMC)

Private Student Loans

Private student loans are offered by many different banks and financial institutions, often under different names.  Some of the major private student loan lenders and private student loan programs are as follows:

  • Sallie Mae
  • Nelnet Bank
  • Discover
  • Rhode Island Student Loan Authority (RISLA)
  • Education Loan Finance (ELFI)
  • SoFi
  • Funding U
  • PNC Bank
  • Citizens Bank (Charter One Bank)
  • Earnest (Navient)
  • Ascent
  • LendKey
  • College Ave
  • Student Loan Corporation (SLC) (owned by Discover)
  • Education Advancement Loan (Wells Fargo)
  • Career Loan (Key Bank)

Private student loans can be serviced by the lender itself, or you may have a servicer that is different from your lender.  Some companies issue and service their own private loans, but also service other companies’ private loans, and may also service federal loans.  If your private loan is not serviced by your lender, you may deal with one of the following servicers:

  • Nelnet (also services federal loans)
  • Sallie Mae
  • Edfinancial (HESC)
  • Navient (also services some federal loans)

Managing and Eliminating Student Loans

The options for managing and eliminating student loans differ depending on whether you are dealing with federal loans or private loans.  When it comes to federal loans, there are many more options available, but because of the vast number of rules and regulations governing federal loans, the procedures are generally more complex, and if the procedures are not followed, you may not get the benefit that you expect (such as the discharge of the loan).  Private loans are not subject to as many regulations.  We will first discuss the rules and procedures applicable to federal loans, and then cover the options for dealing with private loans.  In the last part of this guide, we will discuss how bankruptcy can eliminate both federal and private loans.

Need help with your student loans?  Schedule a student loan evaluation with a Student Loan Attorney.


Federal Student Loan Options When Payments Are Current

Everyone who starts repaying federal student loans begins on a “standard repayment plan.”  This is the default repayment plan if you do not choose a different plan.  On this repayment plan, the payments are fixed, and the entire loan is repaid over 10 years, or 10 to 30 years if the loan is consolidated (consolidation is discussed later in this guide).

However, so long as you are current on your payments, there are several other repayment plan options available for federal loans.  The benefit of these alternative plans is that they adjust the payments based on the borrower’s ability to pay.  The most popular of these plans also provide an option for loan forgiveness—these plans are usually described as income-driven repayment plans.  The current income-driven repayment plans and their main features are as follows:

  • Income-Based Repayment Plan (IBR)
    • Payment amount is limited to either 10% or 15% of your discretionary income, depending on when you took out the loan, and what other loans you had outstanding at the time.
    • Payment term is 20 or 25 years, depending on when the loan was taken out and what other loans were outstanding at the time.
    • The amount unpaid at the end of the payment term is forgiven.
    • Direct Loans, Stafford Loans, and Perkins Loans are eligible for this repayment plan, but parent loans are not.
  • Income-Contingent Repayment Plan (ICR)
    • Payment amount is limited to 20% of your discretionary income, or the amount you would pay on a repayment plan with a fixed payment over the course of 12 years, whichever is less.
    • Payment term is 25 years.
    • The amount unpaid at the end of the payment term is forgiven.
    • Eligible loans include Direct Loans. Others loans, such as Stafford Loans and Perkins Loans, can also become eligible, but they must first be consolidated.
    • This is the only income-dependent plan that can be used for parent loans.
  • Pay As You Earn Repayment Plan (PAYE)
    • Payment amount is limited to 10% of your discretionary income.
    • Payment term is 20 years.
    • The amount unpaid at the end of the payment term is forgiven.
    • Eligibility for this plan is more limited than with the other plans. To be eligible, you must be a “new borrower,” which means (1) that you must have received a disbursement of a Direct Loan on or after October 1, 2011, and (2) you must have had no outstanding balance when you first received a Direct or FFEL Loan on or after October 1, 2007.  Parent loans are not eligible for this plan.
  • Revised Pay As You Earn Repayment Plan (REPAYE)
    • Payment amount is limited to 10% of your discretionary income.
    • Payment term is 20 years if all loans were for undergraduate study, or 25 years if some loans were for graduate or professional study.
    • The amount unpaid at the end of the payment term is forgiven.
    • Eligible loans include Direct Loans. Others loans, such as Stafford Loans and Perkins Loans, can also become eligible, but they must first be consolidated.  Parent loans are not eligible for this plan.
  • Saving on A Valuable Education Repayment Plan (SAVE)
    • The newest plan, going into effect in the summer of 2023.
    • Updates and replaces REPAYE.
    • Allows income up to 225% of the poverty line to be protected from student loan payments (meaning monthly payment will be $0).
    • Payment limited to 10% of income that exceeds 225% of the poverty line. This will be reduced to 5% for undergraduate loans starting in July 2024.
    • If you make your monthly payment, your loan balance will not grow due to unpaid interest.

In additional to the above income-dependent plans, there are several other repayment plans available.  These plans may be useful to some borrowers in specific situations.  One important feature of these plans is that parent loans are eligible.  However, unlike the income-dependent plans, these plans do not provide the option for loan forgiveness, and this must be remembered when deciding if one of these plans is right for you.  These alternative plans and their main features are:

  • Graduated Repayment Plan
    • Payment amount starts low and increases every two years. The monthly payment amount can increase up to 3X from the initial payment.
    • Payment term is 10 years, or 10-30 years for consolidated loans.
    • All Direct Loans and FFEL Loans are eligible for this plan.
  • Extended Repayment Plan
    • This is an alternative to the standard or Graduated Repayment Plan that allows you to extend payments over up to 25 years.
    • To be eligible for this plan, you must have at least $30,000 of either Direct Loans or FFEL Loans. You must also be a “new borrower,” which means that you must have had no outstanding balance under the relevant loan program as of October 7, 1998, or as of a later date when you first obtained a loan under the program.
  • Income-Sensitive Repayment Plan
    • Payment amount is based on income.
    • Payment term is up to 10 years.
    • Only FFEL Loans are eligible.

By choosing the right repayment plan, you can save thousands of dollars over the life of your loan.  In addition, choosing the right repayment plan is extremely important if you want to utilize additional loan forgiveness options, such as Public Service Loan Forgiveness (discussed later).

Federal Student Loan Options When Payments Are Not Current

If your loan payments are not current, then things become a little more complicated, because you may no longer be eligible for the alternative repayment options discussed above, and may not be eligible for other loan forgiveness options.  However, there are ways to get back on track and regain your eligibility for the various loan repayment and forgiveness options.

Difference between Delinquency and Default

In order to understand your options when payments are not current, you must first understand the difference between “delinquency” and “default.”  The first day after you miss a student loan payment, the loan becomes past due, or delinquent.  The loan remains delinquent until you repay the past due amount or make other arrangements, such as deferment or forbearance, or change your repayment plan.  One thing to remember is that if your loan is delinquent for 90 days or more, the loan servicer will report the delinquency to the credit bureaus.  In sum, if a student loan is delinquent, there are several options available for curing the delinquency, and, with the exception of the possible effect on your credit score, the delinquency does not carry long-term effects.

Default, on the other hand, carries with it much more severe consequences.  When the loan is considered in default depends on the type of loan.  With Direct and FFEL loans, default occurs 270 days after you first do not make a scheduled payment.  With a Perkins loan, the holder can declare it in default if you do not make a scheduled payment by the due date.  There are several negative consequences associated with default:

  • The loan gets accelerated, meaning that it becomes due in full
  • You can no longer receive deferment or forbearance, and cannot choose a repayment plan
  • You lose eligibility for additional student aid
  • The default gets reported to credit bureaus
  • The loan can be collected through withholding of wages—up to 15% of your disposable pay can be withheld without a court order
  • The loan can also be collected through withholding of your federal benefits, such as tax refunds and social security payments
  • You can be sued
  • The school may withhold official transcript (but must provide unofficial transcript)

Even if you are in default, the important thing to remember is that you still have options for getting out of default.

Deferment and Forbearance

Both deferment and forbearance provide similar relief—they put a temporary pause on your payments.  These programs are not available if your loans are in default.  Both of these programs are intended to assist with financial difficulties that are short-term, and are not meant as a solution to long-term financial difficulties.  There are different eligibility requirements for deferment and forbearance, and which one you will qualify for depends on your circumstances.

There are several important factors to remember when considering either deferment or forbearance.  First, in most cases, your time in deferment or forbearance will not count toward any loan forgiveness options.  You will also not be making any progress toward paying back your student loan.  Second, interest will continue to accrue while you are in these programs.  In some deferment programs, you do not have to pay back the interest.  But in many other deferment programs, and in all forbearance programs, you will have to pay back the interest.  In addition, in many programs, unless you pay off the accrued interest at the end of your deferment or forbearance, the interest will get capitalized.  This means that the interest will get added to your loan, and you will essentially have to pay interest on interest, which can drastically increase the overall amount you have to repay.

The following are some of the differences in the eligibility criteria and the effect of deferment and forbearance:

  • Deferment
    • You may be eligible for deferment if:
      • You are enrolled at least half-time at an eligible college or career school. Parent PLUS borrowers are eligible for deferment if the student meets the in-school deferment requirements.
      • You are enrolled in an approved graduate fellowship program.
      • You meet economic hardship requirements, which include receipt of welfare benefits or receiving full-time earnings below 150% of the poverty guidelines.
      • You are receiving unemployment or are not able to find full-time employment.
      • You are serving in the Peace Corps.
      • You are receiving cancer treatment.
      • You are on active duty military service or completed such service, and meet additional requirements.
      • You are enrolled in certain rehabilitation training programs.
      • Additional deferment options may be available for older loans.
    • Deferments are available for Direct Loans, FFEL Loans, and Perkins Loans.
    • You are responsible for paying interest that accrues if you have an unsubsidized loan or a Direct PLUS loan, and may be responsible for paying interest accruing on other loan types. Interest unpaid at the end of deferment gets capitalized.
  • Forbearance
    • A general forbearance is a discretionary forbearance that may be granted due to financial difficulties, medical expenses, change in employment, or other reasons.
    • A mandatory forbearance is available in the following circumstances:
      • Your monthly payments on all federal student loans is 20% or more of your monthly gross income.
      • You are in a medical or dental internship or residency and meet additional requirements.
      • You qualify for partial student loan repayment under S. Department of Defense Student Loan Repayment Program.
      • You are serving in an AmeriCorps position for which you received a national service award.
      • You are a National Guard member and have been activated by a governor.
      • You would qualify for teacher loan forgiveness.
    • General forbearance is available for Direct Loans, FFEL Loans, and Perkins Loans. Mandatory forbearance is available only for Direct Loans and FFEL Loans.
    • You are responsible for paying the interest that accrues. Unpaid interest will capitalize if you have a FFEL loan that is not managed by the Department of Education.

Because neither deferment nor forbearance help you with paying off your student loans, and because in most cases you will have to pay additional interest, it is often better to consider an income-driven repayment plan as an alternative to forbearance or deferment.

Getting Out of Default

If you are already in default, there are several options available to allow you to get out of default.  These options are: the Fresh Start program, Rehabilitation, and Consolidation.

  • Fresh Start. This is a one-time temporary program from the U.S. Department of Education that was introduced as a result of the COVID-19 pandemic.  It allows borrowers to get current on defaulted student loans.  When a defaulted borrower enters the Fresh Start program, the loan is transferred to a loan servicer, the loan is returned to “in repayment” status, and the record of default is removed from the borrower’s credit report.  Some benefits of Fresh Start, like restored access to federal student aid, are available automatically.  However, to get the other benefits, you have to apply.  To get the full benefits of Fresh Start, applications need to be submitted by September 2024.  An additional benefit of Fresh Start is that it does not affect your ability to apply for other types of student loan relief for which you would otherwise be eligible, such as rehabilitation.
  • Eligible loans include:
    • Defaulted Direct loans
    • Defaulted FFEL loans
    • Defaulted Perkins loans held by the Department of Education
  • The following loans are not eligible for Fresh Start:
    • Defaulted Perkins loans held by schools
    • Defaulted HEAL program loans
    • Student loans remaining with US Dept of Justice for ongoing litigation
    • Direct and FFEL loans that defaulted after the end of the COVID-19 payment pause
  • Rehabilitation. Rehabilitation is a way to get student loans out of default and back into regular repayment status.  A loan that is rehabilitated becomes eligible for deferment, forbearance, payment plans, and loan forgiveness.  If your loans are successfully rehabilitated, you become eligible to get additional federal student aid.  Rehabilitation also results in the removal of the record of default from your credit history, although late payments before default will still be reported on the credit report.  A defaulted loan can only be rehabilitated once.
    • Rehabilitation requirements differ depending on the type of loan.  For Direct and FFEL loans, you must agree in writing to make nine voluntary, reasonable, and affordable monthly payments (as determined by your loan holder) within 20 days of the due date.  The monthly payment is 15% of your annual discretionary income divided by 12.  However, if you cannot afford this amount, a request can be made to calculate an alternative monthly payment based on your income and expenses.  You must then make all nine payments during a period of 10 consecutive months.
    • For Perkins loans, rehabilitation requires making a full monthly payment each month, within 20 days of the due date, for nine consecutive months.  The monthly payment amount is determined by the school.
  • Consolidation. Consolidation is a procedure for combining multiple federal loans into a single loan.  When consolidating defaulted loans, this procedure also allows the loans to be taken out of default and brought current.  Once consolidated, defaulted loans become eligible for deferment, forbearance, and loan forgiveness.  Unlike rehabilitation, a consolidation does not remove the record of default from your credit history.
    • When consolidating defaulted loans, you have two options.  You can either consolidate Immediately, but must agree to repay the new consolidation loan under one of the income-dependent repayment plans (IDR plans).  Or, if you want to have access to additional repayment plans, you will have to make three consecutive, voluntary, on-time, full monthly payments on the defaulted loan before you consolidate it.  If your wages are being garnished, or you have been sued by the loan holder, you will not be able to consolidate until and unless the wage garnishment order has been lifted or the judgment vacated.  In order to avoid these complications, it is important to act promptly once you fall into default (and preferable even before default) and to not allow the loan to get to garnishment or judgment.
    • If you have previously consolidated, you can reconsolidate your consolidation loan if you have at least one other federal loan meeting the consolidation requirements.  If you have an existing FFEL consolidation loan, you may be able to reconsolidate without adding another loan, provided that you agree to utilize an income-driven repayment plan.

Federal Student Loan Forgiveness

There are several loan forgiveness options available with federal student loans.

Income-Driven Repayment (IDR) Plans

The most broadly applicable is the loan forgiveness available with the income-driven repayment (IDR) plans discussed earlier.  All of these plans provide for forgiveness of the unpaid balance after a certain period (usually 20 to 25 years).

Public Service Loan Forgiveness (PSLF)

The next most common loan forgiveness program is Public Service Loan Forgiveness (PSLF).  The PSLF program provides loan forgiveness to those who work for public service employers, which generally includes government organizations, non-profit tax-exempt organizations, and non-profit organizations that devote a majority of their work to certain qualifying public services.  To utilize the PSLF program, it is important to make sure that the employer you work for or plan to work for is a qualifying employer.  You will be required to provide an annual certification from your employer.

Under the PSLF program, you are able to obtain forgiveness of the balance of your federal loans after you make 120 qualifying monthly payments.  For a payment to be considered “qualifying,” several requirements must be met:

  • You must be employed full-time for a qualifying employer.
  • You must be in a qualifying repayment plan, which, as a practical matter, means that you must be in one of the income-driven repayment plans.
  • You must pay the full amount due as shown on your bill. Under some types of deferment or forbearance, you may also make a qualifying payment while in deferment or forbearance.

An important benefit of PSLF is that the amount forgiven is not taxable.  The PSLF program is available only for Direct Loans, but many other types of federal loans can be consolidated into a Direct Loan to become eligible for PSLF.

Teacher Loan Forgiveness

Another major forgiveness program is Teacher Loan Forgiveness.  Under this program, if you teach full-time for five consecutive and complete academic years in a low-income school or educational service agency, you may be eligible for forgiveness of up to $17,500 of your federal student loans.  This program applies only to Direct Subsidized or Unsubsidized Loans, and Subsidized or Unsubsidized Stafford Loans.  There are several other specific requirements that must be met, including detailed credentialing and certification requirements.  Importantly, the maximum forgiveness of $17,500 is available only to teachers teaching math or science at the secondary school level, or special education teachers teaching at either the elementary or secondary school level.  All other teachers are eligible for a maximum forgiveness of $5,000.  Any amount forgiven is normally taxable, but there are protections in place under the COVID relief, making such forgiveness not taxable until the end of 2025.

Perkins Loan Cancellation

The last major forgiveness program applies specifically to Perkins loans, and allows cancellation of Perkins loans.  The program is designed primarily for teachers, but also applies to several other professions.  The Perkins loan cancellation program allows cancellation of up to 100% of the loan.  To qualify, you must:

  • Have served as a teacher full time in a public or nonprofit elementary or secondary school system
  • The school must serve students from low-income families
  • You must have been a special education teacher, which includes teaching children with disabilities, or, you must have taught in the fields of mathematics, science, foreign languages, or bilingual education, or any other filed determined by a state education agency to have a shortage of qualified teachers

The percentage of the Perkins loans that can be cancelled depends on the number of years served as a teacher, with 15% per year cancelled for the first and second year of service, 20% cancelled for the third and fourth years, and 30% cancelled for the fifth year.

Workers in the following fields and professions may also be eligible for Perkins loan cancellation:

  • Firefighting
  • Law enforcement
  • Military service
  • Faculty at a tribal or community college
  • Early childhood education
  • Professional provider of early intervention services
  • Nurse or medical technician
  • Public defender
  • Librarian with a master’s degree at a Title I school
  • Speech pathologist with a master’s degree at a Title I school
  • Volunteer service, such as AmeriCorps or Peace Corps

Administrative Discharge of Federal Student Loans

 In addition to the loan forgiveness programs discussed above, there are several programs available that allow you to discharge, or eliminate, your federal student loans.  Because applying for and obtaining relief under these programs does not require a lawsuit or going to court, all of these programs are categorized as “administrative discharge.”  (Later in this guide, we discuss a discharge available through the bankruptcy court).  The following is a summary of the administrative discharge programs:

Total and Permanent Disability Discharge

The total and permanent disability discharge allows discharge of Direct Loans, FFEL Loans, or Perkins Loans if you are totally and permanently disabled.

False Certification Discharge

The false certification discharge allows discharge of Direct Loans or FFEL Loans if your school falsely certified your eligibility to receive a loan.  Importantly, Parent PLUS Loans may be discharged under this program.

There are three categories of false certification through which you might be eligible for a false certification discharge:

  • The school falsely certified your eligibility to receive the loan based on your ability to benefit from its training, and you did not meet the ability-to-benefit student eligibility requirements that were in effect at the time the school determined your eligibility.
  • The school certified your eligibility to receive the loan, but when the certification was issued, you had a status that disqualified you from meeting the legal requirements for employment in your state of residence in the occupation for which the program of study was preparing you. Such disqualifying status includes physical or mental condition, age, criminal record, and other circumstances.
  • The school signed your name on the loan application or promissory notewithout your authorization or the school endorsed your loan check or signed your authorization for electronic funds transfer without your knowledge, and the loan money was not given to you or applied to charges you owed to the school.

Forgery Discharge

The forgery discharge allows discharge of Direct Loans if your signature was forged or your personal information was used without your permission, resulting in a loan fraudulently made in your name.  FFEL Loans and Perkins Loans are also eligible under this program if the loans are held by the U.S. Department of Education.

Closed School Discharge

The closed school discharge allows you to discharge your federal student loans if you were unable to complete your program of study because the school closed, and (1) you were enrolled when your school closed, (2) you were on an approved leave of absence when your school closed, or (3) your school closed within 180 days after you withdrew.  This discharge is available for Direct Loans, FFEL Loans, and Perkins Loans.

Borrower Defense Discharge

The borrower defense discharge allows you to discharge your loans if your school engaged in certain misconduct related to the making of a federal loan or the educational services the school provided, and the misconduct caused you harm.  This discharge program is an alternative for those whose situation does not fall within the criteria for the forgery discharge or the false certification discharge.  This program applies only to Direct Loans.  Parent PLUS borrowers are also eligible for this discharge if the conduct supporting the discharge occurred to their child.

There are six grounds for discharge under the borrower defense discharge program:

  • Substantial misrepresentation—the school lies or misleads you about things like educational services, financial charges, employability of its graduates, or any other information that was critical to your decision enroll in the school, continue to be enrolled in the school, or take out a loan.
  • Substantial omission of fact—the school conceals or omits important information that a reasonable person would have considered in deciding to enroll, stay enrolled, or take out a loan.
  • Breach of contract—the school does not do what in promised to do in an agreement you made with the school. The agreement must be made in exchange for your decision to attend the school or to take out a loan, or in exchange for disbursement of the loan funds.
  • Aggressive and deceptive recruitment—the school pressures you into making a decision immediately regarding enrollment or taking out a loan, or the school takes unreasonable advantage of your lack of knowledge or discourages you from consulting with others before making an enrollment or loan-related decision. Other tactics that could warrant discharge on this ground include: the school obtains your information through a website or service that provides false information about benefits, employment, or the school’s rankings; the school uses threatening or abusive language toward you; or the school repeatedly contacts you for enrollment after you ask it to stop.
  • Judgment—there is a judgment against the school from a court, finding that the school violated the law in connection with the making of a loan or the provision of educational services for which the loan was provided.
  • Prior secretarial action—this ground applies if the Department of Education revokes the school’s provisional program participation agreement or denies the school’s recertification to participate in the federal student aid program, if the Department of Education’s action is based on conduct that could give rise to a borrower defense under the first four grounds discussed above.

The borrower defense discharge is very fact-intensive.  Because of this, if you are trying to take advantage of this discharge, it is important to make sure that the application for discharge is properly and fully prepared, that all of the supporting facts are addressed with specificity, and that proper and complete supporting documentation is provided.  Failure to properly prepare the request for discharge can result in denial of discharge even if you are eligible.  This generally applies to any of the discharge programs discussed here, but is especially important when it comes to the borrower defense discharge.

Private Student Loan Options

Unlike federal student loans, private student loans are generally not subject to any special laws or regulations, and are governed by the same laws that govern contracts in general.  This significantly narrows down the options available when dealing with private student loans.  These options can be separated into loan modification and legal defense/litigation.  A third option, discharge in bankruptcy, is addressed in the last part of this guide.

Private Student Loan Modification Options

The loan modification options for private student loans are going to vary from lender to lender.  Each of the major lenders that administers private student loans is going to have its own programs and procedures it offers when you miss your payments, or when your private student loan payments become unaffordable.  What these procedures and programs are has to be determined in a case-by-case basis, depending on the lender.  Some lenders may not have any such procedures available, and may require payment in full once the private loan goes into default.  If a lender requires payment in full, it is still often possible to reach a settlement that provides for payment of less than the full amount to resolve the debt.  However, if the amount that needs to be paid in settlement is still too high, then there may still be legal defenses available, which can be asserted in the lawsuit brought by the lender to collect on the loan.

Legal Defenses to Private Student Loans

For private student loan situations that have gone to a collection lawsuit, there are generally two approaches available to challenge your liability on the loan.  Whether or not either of these approaches will be applicable depends on the specific situation.  Additionally, depending on the specifics of your situation, there may be other, less common, legal defenses available.

The first approach to defending a private student loan collection lawsuit is based on the statute of limitations.  A “statute of limitations” establishes a limit on how much time a lender has to bring a lawsuit to collect on the student loan.  Almost all student loan collection lawsuits make a claim for breach of contract.  The statute of limitations for breach of contract varies by state, and ranges from 3 to 10 years.  For example, in Arizona, the statute of limitations for written contracts is 6 years, in California it is 4 years.

Generally, the statute of limitations begins to run when you stop making payments on a loan.  If the lender does not file a lawsuit to collect on the private student loan within the applicable limitations period from when you stopped making payments, the loan may be unenforceable.  However, if you later make a payment, or acknowledge the debt by some other means, the statute of limitations may be restarted.  Because of this, if you are already in default on the loan, are trying to make arrangements to resolve the loan, but are unsure if your efforts will be successful, it is important to not say or do anything that could later be used to undermine your statute of limitations defense.  Oftentimes, the best way to avoid inadvertently waiving your statute of limitations defense is to have a lawyer negotiate a resolution of your private student loan, because properly structured negotiations by attorneys are not treated as an admission or an acknowledgment of the debt.

The second approach to defending a private student loan collection action is to require the current loan holder to prove that it is entitled to enforce the loan.  This will not work if the current loan holder is the same entity that issued the loan.  However, with many private student loans, the initial loan is issued by a bank or another financial institution, but the loan is then quickly sold or transferred to another entity.  The loan can then be sold or transferred several additional times, before ending up with the lender that files the collection lawsuit.  The entities that purchase student loans tend to be ones that specialize in private student loan investment, and therefore they buy these loans in bulk, hundreds or even thousands at a time.  Oftentimes, this results in the sales of individual loans being poorly documented, and lack of such documentation creates a potential defense in the collection lawsuit.  A major example of this are the loans held by the National Collegiate Student Loan Trust (NCSLT).  NCSLT purchases loans from the original lenders through several intermediaries, including National Collegiate Funding and First Marblehead Corporation, and it often lacks documentation to prove that it is entitled to enforce the loan.  Of course, as noted earlier, every situation is different, and there is no guarantee that a particular NCSLT loan, or a loan held by another lender, will lack sufficient documentation.  But, this is a potential defense that should always be explored.

Bankruptcy Discharge

Both federal and private student loans can be discharged, or eliminated, through bankruptcy.  For many decades, meeting the requirements to discharge student loans in bankruptcy proved very difficult, because bankruptcy courts had imposed unreasonably strict limitations on discharge requests.  However, in recent years, two important changes made discharging student loans in bankruptcy much easier.  First, courts throughout the country have been gradually changing their interpretation of the law in a way that is both more in line with the actual language of the law, and is more favorable to people seeking to discharge their student loans.  This has had particular impact on the discharge of private student loans.  Many private student loans that were previously protected from discharge can now be discharged just like any other unsecured debt, such as a credit card.  The second important change has been the introduction by the federal government of a streamlined and more lenient process for discharge of federal student loans.  Before we talk about the specifics of these two changes, we will first summarize the requirements for discharging student loans in bankruptcy.

Requirements for Discharging Student Loans in Bankruptcy

In order to successfully discharge a student loan through bankruptcy, you must prove that having to repay the loan will impose an undue hardship on you.  Courts have broken down this requirement into three elements.  So, to prove undue hardship, you must establish that (1) if you are forced to repay the student loan, you would not be able to maintain a minimal standard of living, (2) your hardship is likely to continue for a significant portion of the loan repayment period, and (3) you have made good-faith efforts to repay the student loan before filing for bankruptcy.

In order to discharge student loans in bankruptcy, you would of course need to first file for bankruptcy.  There are several different bankruptcy types, and you will want to choose the right type of bankruptcy, preferably in consultation with your bankruptcy attorney.  After the bankruptcy is filed, you will need to file a separate lawsuit in bankruptcy court, called an “adversary proceeding.”  It is in this adversary proceeding that you (or your lawyer on your behalf) will ask the court to discharge or eliminate your student loans.

Normally, proving undue hardship is a fact-intensive process, which would usually require a trial.  However, with recent changes, the process of proving undue hardship can be simplified or entirely avoided in certain circumstances, which are discussed below.

Streamlined Process for Discharging Federal Student Loans

The Department of Justice (DOJ) recently introduced guidance that greatly simplifies and streamlines the process of discharging federal student loans.  If your federal loans fall within the guidance, then, instead of having a trial, you will only need to submit an attestation supporting your request for discharge to the DOJ, along with the required documentation.  The documents are then reviewed to determine if your circumstances meet the standards set out in the guidance.  If you meet the standards, the DOJ and the Department of Education will agree to a discharge of your federal loans.

Under the DOJ guidance, the DOJ and the Department of Education still look at whether requiring you to pay back the federal loans will impose an undue hardship.  For example, they will still consider your income, your expenses, and the amount of your loans.  However, under the guidance, the calculation of the ability to pay the loan is generally more favorable to the student loan borrower.

One thing to note is that you must still file for bankruptcy, and file an adversary proceeding, as this is what initiates the review under the DOJ guidance.  However, the guidance, if applicable, effectively eliminates all of the litigation that would normally take place after the adversary proceeding is filed.  This not only saves time, but also significantly reduces the legal cost of the discharge process.  On the other hand, if the discharge is not approved through the DOJ process, you still retain the right to proceed with the litigation and have the bankruptcy court determine whether your student loans should be discharged.

Currently, the DOJ guidance applies only to loans administered by the Department of Education, which includes all Direct Loans, but does not include most FFEL Loans, such as Stafford Loans.  However, the program may soon be expanded to apply to these other loans as well.

Lastly, it is important to remember that the DOJ guidance is just that, a guidance, and is not a law.  This means that the guidance can be changed or entirely revoked if the political preferences of the federal government change, which would happen if the political party in control of the presidency changes.  Therefore, for those who may be eligible for federal student loan discharge, it may be prudent to seek such discharge sooner rather than later.

Discharging Private Student Loans Without Proving Undue Hardship

When it comes to private student loans, it may be possible to discharge them without having to prove undue hardship.  The reason for this is that the protections for private student loans are much narrower that the protections for federal student loans.

For a private student loan to be presumptively not dischargeable, it has to be a “qualified education loan.”  That term is very technical, and there are a number of factors that must be considered to determine if a private student loan meets the requirements of a “qualified education loan.”  Some of these factors are:

  • When the loan was incurred in relation to when you obtained the education.
  • Whether the loan amount was not more than the cost of attendance after subtracting other scholarships, allowances, or payments that you received toward the costs of attendance.
  • Whether you were an eligible student for student loans (eligibility is determined by several factors, including whether you were in a program leading to a recognized educational credential, and whether you were in school at least part-time).
  • Whether the school you attended was an eligible educational institution for purposes of receiving federal financial aid.

The bottom line is that if any of these requirements are not met, then your private student loan can be discharged without you needing to prove that paying it back will cause you undue hardship.  Because of this, if you are considering eliminating private student loans in bankruptcy, it is beneficial to have the loans evaluated by an attorney specializing in student loans.

And, of course, even if your private student loan is presumed to be not dischargeable, you still retain the ability to eliminate it by showing that having to repay it will cause you undue hardship.

Final Thoughts

With the federal student loan payments resuming in October 2023, dealing with student loan debt can seem like an overwhelming and insurmountable obstacle.  However, it is important to know that there are options available for reducing or even eliminating your student loans.  What is important is to not wait until your wages are being garnished or other adverse action is being taken against you.  Being proactive and planning ahead is the first and most important step in obtaining a successful resolution of your student loan debt.

Not sure what to do about your student loans?  Contact us for a 15-minute complimentary student loan evaluation with a Student Loan Attorney.


The above is provided for general informational purposes only. It is not intended to and does not constitute legal advice, and does not create an attorney-client relationship. If you need legal advice for your specific situation, you should contact a qualified attorney in your area.