Maintained for Historical Purposes

This resource is being maintained for historical purposes only and is not currently applicable.

Federal Family Education Loan Program - Loan Discharge

AwardYear: 1997-1998
EnterChapterNo: 10
EnterChapterTitle: Federal Family Education Loan Program
SectionNumber: 6
SectionTitle: Loan Discharge
PageNumbers: 69-72


If a FFEL borrower dies or becomes totally and permanently
disabled, the borrower's obligation to repay the loan is canceled, and
the loan holder is not permitted to collect the loan from an endorser
or from the borrower's estate. Certification of total and permanent
disability from a qualified physician is required for loan cancellation.
A Federal PLUS Loan borrower's debt will be canceled if the student
for whom the parent borrowed the PLUS Loan dies. An endorser of a
loan canceled because of death or total disability is not obligated to
repay the loan. However, if parents borrow a PLUS Loan jointly as
co-makers or if a couple consolidates a loan jointly, the death or total
disability of one of the borrowers does not relieve the other of the
repayment responsibility. If both borrowers have a condition (not
necessarily the same one) under which they qualify for loan
cancellation, the loan may be canceled.


[[Bankruptcy--"Dear Colleague" Letter GEN-95-40, dated
September 1995]]
A borrower may also have his or her loan discharged in bankruptcy.
A federal student loan is not dischargeable in bankruptcy unless

- the loan has been in repayment for at least 7 years, excluding any
periods of deferment or forbearance ("suspended repayment") or

- the bankruptcy court has determined that repayment of the loan
would cause an undue hardship to the debtor and his or her


[[Closed school discharge]]
A borrower's obligation to repay a FFEL received on or after January
1, 1986 will be canceled if the student (the student borrower or the
student on whose behalf a parent obtained a PLUS Loan) was unable
to complete his or her program of study because the school closed or
if the student withdrew from the school not more than 90 days before
the school closed. This 90-day period may be extended on a case-by-
case basis if an extension is deemed appropriate by the Department.
For additional information on this discharge provision, see 34 CFR

[[Falsely certified loan]]
A borrower's obligation to repay may be canceled if the school
falsely certified the borrower's loan. False certification includes

[[False certification of ability to benefit--"Dear Colleague" letter
GEN-95-42, dated September 1995]]
- the school's falsely certifying the student's loan eligibility by
certifying that he or she had the ability to benefit from its training

- the school's signing the borrower's name without borrower
authorization on the loan application, promissory note, loan check,
or electronic funds transfer (EFT) authorization.

If either of the above conditions occurs, the loan may be discharged
under this provision.

In the case of a borrower requesting a discharge because the school
signed his or her name on the loan application or promissory note,
the borrower must state that the signature on either of those
documents was not his or her own. The borrower also must provide
five different signature specimens, two of which must be from no
earlier or later than one year before or after the date of the contested
signature. (These signature specimens are also required under the
condition described in the next paragraph, unauthorized signature for
electronic funds transfer.)

[[Unauthorized signature]]
In the case of a borrower's claiming false certification based on
unauthorized signature on a loan check or an EFT authorization, the
borrower must certify that he or she did not endorse the loan check
or sign the EFT authorization and that he or she did not authorize the
school to do so. The borrower must state that he or she did not
receive the proceeds of the contested disbursement either through
actual delivery of the loan funds or by a credit to the school's

Interest and collection fees, as well as loan principal, will be
discharged if cancellation is granted. The Department will attempt to
collect from the school the loan amount discharged, including any
refund owed the student. For additional information on false
certification, see 34 CFR 682.402(e).

A closed school or false certification discharge also relieves any
endorser of the obligation to repay the loan.


An applicant who applies for SFA funds and who included a
defaulted federal student loan that is NONDISCHARGEABLE in his
or her bankruptcy schedules will be considered ineligible for further
federal student aid until he or she resolves the default. Such a
borrower can negotiate a satisfactory repayment arrangement with
the holder of the debt. The holder can set the terms of the satisfactory
repayment arrangement.

If default occurred prior to the borrower's bankruptcy filing and the
loan was discharged in the bankruptcy, the applicant is eligible for
further SFA funds. Because borrower is no longer obligated to repay
the debt, he or she does not have to establish satisfactory repayment

The Department no longer requires as a condition for SFA eligibility
reaffirmation of a loan that was discharged in bankruptcy or for
disability. However, a borrower whose loan debt was canceled due to
total and permanent disability and who later applies for a FFEL must

- provide a physician's certification that the borrower is able to
engage in "substantial gainful activity" such as working or
attending school, and

- sign a statement affirming that the new loan for which the
borrower is applying cannot be canceled in the future based on
present impairment (unless the borrower's condition substantially

If a borrower's defaulted loans are discharged for false certification,
the borrower (if otherwise eligible) regains eligibility for SFA funds.
In addition, any adverse credit history will be deleted from credit-
reporting agencies' records. The period of study the student was
unable to complete because of a school's closing will not be counted
in calculating the student's eligibility for additional student financial

There are some defaulted loans on which the Department or the
appropriate guaranty agency has totally ceased collection activity
after several unsuccessful attempts to collect these loans. If a
borrower of such a loan wishes to borrow again under the FFEL
Program, he or she must reaffirm the previous loan amount. In
addition, the borrower must make satisfactory repayment
arrangements on the defaulted debt.

Reaffirmation is the legal acknowledgment of the loan. Legally
acknowledging the loan may require the borrower to

- sign a new promissory note or repayment schedule for a
previously canceled loan or

- make a payment on the loan.

When loans are reaffirmed, they count toward the borrower's
aggregate loan limits.


If a lender receives payments on a borrower's student loan account
after the guaranty agency notifies the lender of a discharge (on the
basis of total and permanent disability, death, bankruptcy, false
certification, or school closing), all of these payments must be
returned to the sender. At the same time, the lender must notify the
borrower that there is no further loan obligation.


Currently, if a student borrower decides to serve as an enlisted
person in certain specialties in the U.S. Army, the Army Reserves,
the Army National Guard, or the Air National Guard, the Department
of Defense (as an enlistment incentive) will repay a portion of his or
her loan. For more information, a student should contact his or her
local Army or Air National Guard recruiting office. This is a
recruitment program and does not pertain to an individual's prior

Loan repayment under this program is made directly to the lender
and is not considered financial aid. Such repayment is considered as
student income when loan eligibility is calculated.

Last Modified: 07/28/1998