Overview

Loan discharge cancels a borrower’s legal duty to repay part or all of a loan. When you compare federal and private student loan discharge, the critical differences are (1) legal protections and statutory programs for federal loans, and (2) lender‑specific rules and fewer formal discharge paths for private loans. Understanding which loan you have is the first step — federal loans are listed on the National Student Loan Data System (NSLDS) and serviced through federal loan servicers, while private loans are shown on statements from banks, credit unions, or private lenders.

(If you’re unsure which you have, check the federal loan database at studentaid.gov and review your loan statements.)

How federal loan discharge works

Federal student loans are governed by federal statutes and administered by the U.S. Department of Education. Several statutory discharge and forgiveness options exist:

  • Public Service Loan Forgiveness (PSLF): After 10 years (120 qualifying payments) on a qualifying repayment plan while working full‑time for qualifying public service employers, remaining Direct Loan balances may be cancelled (Federal Student Aid: PSLF program).
  • Total and Permanent Disability (TPD) discharge: Borrowers who meet Social Security Administration, Department of Veterans Affairs, or physician certification criteria may get TPD discharge (Federal Student Aid: TPD discharge).
  • Closed‑school discharge: If your school closes while you’re enrolled or soon after you withdraw, you may qualify for a discharge of federal loans made for that program.
  • Borrower Defense to Repayment: If a school engaged in misconduct (fraud, false claims), borrowers may apply for relief to discharge federal loans tied to that school.
  • Income‑Driven Repayment (IDR) forgiveness: After 20 or 25 years of qualifying payments on an IDR plan, any remaining balance may be forgiven.
  • Death discharge: Federal loans are discharged upon the borrower’s death; federal rules also address cosigners.

Each program has specific application steps, documentation requirements, and processing timelines (see studentaid.gov for program details). The U.S. Department of Education administers applications and appeals, and servicers process paperwork. For authoritative guidance on federal discharge options, see Federal Student Aid (https://studentaid.gov/) and the U.S. Department of Education (https://www.ed.gov/).

How private loan discharge works

Private student loans are contractual obligations between a borrower and a private lender (bank, credit union, or nonbank lender). There is no single federal program ensuring discharge for private loans; options depend on the lender’s policies, your contract terms, state law, and, occasionally, bankruptcy outcomes.

Common private‑loan discharge paths include:

  • Death or total disability clauses written into the promissory note — some lenders will discharge loans upon borrower death or disability, but language varies.
  • Hardship discharges or settlement negotiations — lenders may agree to reduce or cancel debt in rare situations, typically in exchange for a lump sum or a settlement agreement. This is not guaranteed, and outcomes vary widely.
  • Bankruptcy discharge: Private student loans are sometimes dischargeable in bankruptcy, but courts often apply the test for “undue hardship,” a difficult standard. Case law and outcomes vary by jurisdiction.

Private lenders are not required to honor federal forgiveness programs. If you have both federal and private loans, you can pursue federal programs for your federal loans while separately negotiating or refinancing private debt.

For practical guidance on private loans, consult the Consumer Financial Protection Bureau (https://www.consumerfinance.gov/) and your loan contract.

Eligibility: who qualifies for which type of discharge?

Federal loans: eligibility is program‑specific. Examples:

  • PSLF: qualifying employer, qualifying repayment plan (typically an IDR), and certified qualifying payments.
  • TPD: medical certification via SSA, VA, or a physician’s documentation.
  • Borrower Defense: evidence of misconduct by the school and timely application.

Private loans: eligibility depends on your lender’s contract language and their willingness to consider hardship claims. Some private loan agreements contain explicit death or disability discharge terms; others do not. Always review your promissory note.

Application process and documentation

Federal:

  1. Identify the program you’re applying for and the correct form on studentaid.gov.
  2. Gather documentation (employment certification for PSLF, medical records for TPD, school correspondence for borrower defense, etc.).
  3. Submit the application to your loan servicer or to Federal Student Aid where required, and keep copies of all documents.
  4. Monitor the decision, appeal if denied, and keep payment records.

Private:

  1. Contact your lender and request a written explanation of discharge or hardship options.
  2. Provide requested documentation (medical records, death certificate, financial hardship evidence).
  3. If the lender refuses, consider negotiating a settlement or pursuing assistance from a nonprofit counselor or attorney.

Timelines and processing

Federal discharge applications can take months to a year to process, depending on complexity and documentation. PSLF certification and final forgiveness decisions often require months of careful record review. Private lender responses vary widely and may also take months.

Tax and credit consequences

  • Federal discharge tax treatment: Under the American Rescue Plan Act of 2021, most student loan discharges occurring between 2021 and December 31, 2025, are excluded from gross income for federal tax purposes (check current IRS guidance: https://www.irs.gov/). Rules may change after 2025; verify with the IRS or a tax professional.
  • Private loan cancellation of debt: If a lender settles and cancels debt, the forgiven amount may be reported on IRS Form 1099‑C as taxable income unless an exclusion applies. Consult IRS guidance on cancellation of debt.
  • Credit reports: Discharge or settlement outcomes affect credit differently. A full discharge usually eliminates the balance; settled accounts may be reported as “settled” which can still negatively affect credit scores.

For more on taxes after discharge, see FinHelp’s own coverage on Tax Treatment of Forgiven Debt.

How discharges affect cosigners and guarantors

Federal discharges typically protect cosigners differently than private loans. For private loans, a cosigner may remain liable unless the lender’s discharge language specifically releases cosigners or the lender agrees to settle with the cosigner. See our guide: How Loan Discharge Affects Cosigners and Guarantors.

Practical strategies I recommend (based on experience)

  • Confirm loan type: Use NSLDS (federal) and review all promissory notes (private) to know what’s covered.
  • Preserve documentation: Keep employment records, payment histories, medical documentation, and all communications in writing.
  • Certify employment for PSLF every year using the PSLF Employment Certification Form — this often prevents surprises at application time (Federal Student Aid).
  • Don’t assume private loans will be forgiven: treat negotiations for private loans as contract disputes and consider legal help if lenders refuse reasonable hardship relief.
  • Consider alternatives: refinancing private loans (carefully), hardship forbearance, or settlement programs may reduce monthly pressure but can have tax and credit costs.

Common mistakes and misconceptions

  • Assuming private loans have the same protections as federal loans.
  • Believing bankruptcy automatically wipes out student loans (“undue hardship” is required and rare).
  • Failing to document qualifying employment for PSLF; many borrowers lose creditable payments because they didn’t use the employment certification form.

Where to get help

  • Federal Student Aid (studentaid.gov) — official applications and program details.
  • Consumer Financial Protection Bureau (consumerfinance.gov) — private lender and contract issues.
  • A qualified student loan attorney or nonprofit student loan counselor for complex disputes, settlements, or bankruptcy considerations.

Quick checklist to pursue discharge

  1. Verify whether each loan is federal or private.
  2. For federal loans: identify the applicable discharge program and gather forms and documentation from studentaid.gov.
  3. For private loans: review your promissory note and contact the lender in writing; ask about death/disability clauses and hardship policies.
  4. Keep copies and track timelines; if denied, ask about appeal procedures.
  5. Consult tax counsel before assuming forgiven debt is taxable or tax‑free.

Selected authoritative sources

Professional disclaimer: This article is educational and does not constitute legal, tax, or financial advice. In my practice advising borrowers, I’ve found that careful documentation, early certification for PSLF, and understanding your promissory note are the most powerful steps toward a favorable outcome. For personalized advice, consult a qualified attorney, tax advisor, or certified student‑loan counselor.