How Does a Student Loan Discharge Work?
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A Forgiveness of Debt
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A discharge from a loan, also called a cancellation of a loan, is total forgiveness from the debt owed. This amounts to a gain in income by the borrower in the amount still owed on the loan, and a loss to the lender of the same amount. Since lenders give money with the expectation of being paid in earning interest, discharge from a loan is usually the result of inability to pay, and bankruptcy, which severely impairs the borrower's credit.
Circumstances that Can Lead to a Loan Discharge
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As the price of education continues to rise, the amount of debt students must take on in the form of loans has ballooned in recent years. As a result many students are strained by their debt burdens once they leave school, and attempt to find avenues of relief or even ways to discharge their loan. Two ways a loan is discharged immediately is upon the borrower's death, or disablement. Other ways are if your school lied to you about the benefits their education would provide, (i.e. you thought you were getting a certain degree, but you did not) or if the school closed while you were attending.
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Difficult to Get a Loan Discharge
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Apart from the rare and undesirable circumstances discussed in the previous section, the only way to be discharged from a student loan is file for bankruptcy. Unlike a normal loan, a student loan is not immediately canceled upon bankruptcy however. The student must prove that the loan will cause "undue hardship," a status which courts grant sparingly. If an unmarried school teacher had student debt of $125,000 and several children, the debt could possibly pass court muster as undue hardship. But for the average graduate, being discharged from student debt is not possible. As a result, many students feel forced into higher paying fields that they do not desire or even into working abroad to evade loan payments.
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