Student Loan Discharge Vs. Cancellation Vs. Forgiveness

With nearly two decades in journalism, Dori Zinn has covered loans and other personal finance topics for the better part of her career. She loves helping people learn about money, whether that’s preparing for retirement, saving for college, crafting.

Dori Zinn Loans Writer

With nearly two decades in journalism, Dori Zinn has covered loans and other personal finance topics for the better part of her career. She loves helping people learn about money, whether that’s preparing for retirement, saving for college, crafting.

Written By Dori Zinn Loans Writer

With nearly two decades in journalism, Dori Zinn has covered loans and other personal finance topics for the better part of her career. She loves helping people learn about money, whether that’s preparing for retirement, saving for college, crafting.

Dori Zinn Loans Writer

With nearly two decades in journalism, Dori Zinn has covered loans and other personal finance topics for the better part of her career. She loves helping people learn about money, whether that’s preparing for retirement, saving for college, crafting.

Loans Writer Caroline Basile Mortgages and Student Loans Deputy Editor

Caroline Basile is Forbes Advisor’s student loans and mortgages deputy editor. With experience in both the mortgage industry and as a journalist, she was previously an editor with HousingWire, where she produced daily news and feature stories. She ho.

Caroline Basile Mortgages and Student Loans Deputy Editor

Caroline Basile is Forbes Advisor’s student loans and mortgages deputy editor. With experience in both the mortgage industry and as a journalist, she was previously an editor with HousingWire, where she produced daily news and feature stories. She ho.

Caroline Basile Mortgages and Student Loans Deputy Editor

Caroline Basile is Forbes Advisor’s student loans and mortgages deputy editor. With experience in both the mortgage industry and as a journalist, she was previously an editor with HousingWire, where she produced daily news and feature stories. She ho.

Caroline Basile Mortgages and Student Loans Deputy Editor

Caroline Basile is Forbes Advisor’s student loans and mortgages deputy editor. With experience in both the mortgage industry and as a journalist, she was previously an editor with HousingWire, where she produced daily news and feature stories. She ho.

| Mortgages and Student Loans Deputy Editor

Updated: Jul 6, 2022, 5:00am

Editorial Note: We earn a commission from partner links on Forbes Advisor. Commissions do not affect our editors' opinions or evaluations.

Student Loan Discharge Vs. Cancellation Vs. Forgiveness

Getty

As of 2022, there are over 43 million federal student loan borrowers. While many will likely end up paying off their loans in full, others might qualify to have their loans discharged, canceled or forgiven.

While these terms are often used interchangeably, each of them refers to a different process when it comes to removing the borrower’s repayment obligation.

Here’s what student loan discharge, cancellation and forgiveness mean for federal student loans and how you might qualify.

Student Loan Discharge vs. Cancellation vs. Forgiveness

Because federal student loan discharge, cancellation and forgiveness work differently, it’s important to do your research to see which programs you might be eligible for. Here’s a basic overview of how they work:

What Is Student Loan Discharge?

Student loan discharge is when you’re no longer required to make federal student loan payments due to extenuating circumstances beyond your control. For example, if you become permanently and totally disabled, it will likely be difficult for you to make an income and pay your student loans—which is why those in this situation can qualify to have their federal loans discharged.

Other scenarios that can make you eligible for student loan discharge include:

Is Student Loan Discharge Taxable?

In most cases, no—you won’t have to pay taxes on federal loans that are discharged. However, keep in mind that there are some exceptions.

For example, if you had your loans discharged due to a permanent and total disability before Jan. 1, 2018, you might be liable to pay income taxes on the discharged amount. But loans discharged for this reason after January 1, 2018, through December 31, 2025, will not be taxed.

How to Apply for Student Loan Discharge

If you think you qualify for student loan discharge, you can apply for the specific program through the Department of Education. In some cases, this might require working with a certain servicer—for example, applications for total and permanent disability discharge must be submitted to Nelnet .

Generally, you don’t have to make payments on your loans while your application is being reviewed. You can check with your servicer to see if payments are required or for additional help with the application process.

What Is Student Loan Cancellation?

Student loan cancellation occurs when you’re no longer required to make payments on your federal student loans because of your job.

For example, if you have a Perkins loan, you could have up to 100% of it canceled if you work in a qualifying eligible government or nonprofit field for five to seven years, depending on your profession.

Professions potentially eligible for Perkins loan cancellation include:

Is Student Loan Cancellation Taxable?

This depends on how your federal loans are canceled. For example, if you’re eligible for Perkins loan cancellation, you won’t have to worry about taxes on the canceled amount.

How to Apply for Student Loan Cancellation

If you qualify for cancellation, you’ll generally be able to apply through your loan servicer. For Perkins loan cancellation, you must apply through the school that gave you the Perkins loan or through the school’s Perkins loan servicer.

What Is Student Loan Forgiveness?

Similar to cancellation, student loan forgiveness is when you’re no longer required to make payments on your federal loans, typically because of your employment in an eligible government or nonprofit organization.

There are three main federal student loan forgiveness programs available.

Is Student Loan Forgiveness Taxable?

This depends on the program. PSLF and Teacher Loan Forgiveness are both tax-free, while forgiveness under an IDR plan could be subject to taxes.

How to Apply for Student Loan Forgiveness

You can use the PSLF Help Tool to see if you’re eligible and on track for PSLF as well as to fill out an application. If you’re ready to apply, you can then send that form to the Missouri Higher Education Loan Authority (MOHELA) for processing.

For Teacher Loan Forgiveness or IDR, you can apply through your current servicer.