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Loan Forgiveness vs. Loan Cancellation: What’s the Difference?


Getting a higher education in the U.S. is expensive. This is the reason why most people who want to get into one apply for student loans. With this, borrowers can get into college without having to worry immediately about the cost and pay off what they due after graduation and landing a steady job.

Student loans, however, are a burden for many. Many are struggling to pay off the loans under their name. However, some instances can lessen a borrower’s debt or make it disappear entirely. These programs, however, need specific credentials before borrowers can relieve themselves of obligation.

What Makes Cancellation and Forgiveness the Same?

Loan cancellation and forgiveness might sound the same. After all, they’re both terms for borrowers who are no longer required to pay for their loans. However, these two are far from the definition of each other.

The difference between cancellation and forgiveness is the types of loan programs they cover. By applying for a forgiveness program, students can expect that their student debt would cease to exist. Mortgages, auto loans, or other types of loans have no loan forgiveness.

Loan Cancellation, on the other hand, can only be done under minimal conditions. It’s not easy to cancel a loan since it asks for precise documentation and the borrower must qualify for its strict requirements. Not being able to find a well-paying job as a reason will have your application denied.

What is Loan Forgiveness?

Loan forgiveness is for borrowers with student loans who can free themselves from debt. Be it the entire money owed or just a portion of it, the federal government offers loan forgiveness through the forgiveness program. Not everyone can apply for this program, though, and needs specific qualifications before you can apply for the program. A borrower, to be qualified, must be:

Military Service. Among the other criteria, this option can be the most life-altering one. Through the Servicemembers Civil Relief Act or SCRA, borrowers, cosigners, and active service members can have the interest rate on their loans to 6%, especially if in active duty. The SCRA is applicable for both federally funded or private student loans.

Volunteer Work. Volunteer programs that offer debt relief assistance can take a longer-term of service, at least a year for most. Through the Public Service Loan Forgiveness or PSFL, borrowers can make 120 payments in 10 years with an income-driven plan, and eligible borrowers will have their loans forgiven.

Teach/Practice Medicine in Certain Communities. Borrowers that went through medical school can get their loans forgiven by serving a particular type of community. There are many to choose from, and one of them is serving in the National Health Corps. These are applicable for borrowers who are already practicing medicine in primary care, dental, mental, and behavioral health care fields to work in areas considered with high-needs. With a two-year commitment, borrowers can qualify for up to $60,000.

Meet other Criteria in the Forgiveness Program. If borrowers can’t find themselves in these specific areas, the federal government has different qualifications for student debt relief. This can come in the form of IBR, PAYE, ICR, and many other programs.

What is Loan Cancellation?

Because of certain circumstances, a borrower can apply for a cancellation of their student debt. This terminates their contract, and the borrower need not pay back the amount of money they borrowed. Unlike forgiveness, cancellation is asking the lender to cut back a portion of the money you owe. If the borrower can meet certain conditions, the lender might consider the application and agree.

If the lender signs off the loan, the borrower will be free from any liability. However, they still must pay for the taxes on the debt that has been canceled. Listed below are the conditions that allow borrowers to apply for student debt cancellation.

Issues with the School. If the school a borrower has attended faces problems that can no longer allow the borrower to complete the program they have enrolled in, canceling the remaining loan is possible. You won’t be able to get your money back, however. Some of the school-related issues might also require borrowers to meet specific eligibility standards.

Disability. Total disability can cancel a borrower’s loans. If they can’t find a decent job or source of income to pay off their debt, the lender can cancel the request. To be able to cancel a student loan through this method, a borrower must show proof from a medical expert that they are unfit to work. Borrowers can also provide documents and avail to benefits for disabled people.

Death. If the borrower dies, all their debt will be canceled. Their family won’t be liable for the repayment of the debt.


Paying a student loan can be a frustrating affair. Many have been struggling to pay off their debt after graduating from college. That is why some people resort to student loan forgiveness or cancellation. By being eligible for one, students can apply to relieve themselves of a part of their debt or make it disappear completely.

Author Bio

Tiffany Wagner is a writer who has published a lot of blogs about financial tips and advice on reputed journals. Strong-willed and passionate, Tiffany believes that everyone has the right to a higher education in the U.S. In her free time, she researches information about the effect of the student loan crisis currently plaguing not only the new generation, but also the economy.

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