Can student loan debt be forgiven?

By STEVE BUCCI
Monday, March 05, 2007

Dear Debt Adviser,

How long can they pursue a student loan debt (from six years ago)? Does it have a statute of limitations? Thank you. _ Carlos

Dear Carlos,

Perhaps you have heard the expression that nothing is certain except for death and taxes. Well, student loan debt is just one step behind owing the IRS on the ladder of debt longevity. And the IRS is only below St. Peter when you meet him at the pearly gates! (Although IRS agents do get into heaven, they lack jurisdiction there!) After all, the government either provides or secures the funds for student loans, so having to repay them should be no big surprise.

To answer the question you asked, no, student loans do not have a statute of limitations. Under most circumstances, you must repay the loan. Partial or full discharge or forgiveness of student loans is possible. My learned friends at the California Bankruptcy Attorneys tell me that there is still a limited discharge right with respect to student loans for a "hardship." The kindly attorneys sometimes refer to this as the "iron lung" discharge because in their experience, unless you are expecting to be in an iron lung the rest of your life, it is unlikely that you will get the discharge of your student loan.

The court will need to be convinced that not only your present income but also your income for a long time to come will prevent you from paying the loan back. Permanent disability may give you a chance at this. If you go this route, check with an attorney. I am not now nor have I ever been accused of being an attorney, and this is definitely a situation where you want get a legal opinion on which to rely.

Additional information on the limited circumstances under which you can dodge a student loan can be found at the U.S. Department of Education's student loan site. A summary of those circumstances follows.

Paying down, discharging or canceling student loans:

_ Volunteer work: AmeriCorps (domestic arm of the Peace Corps) or the Peace Corps both offer education awards that can be used for tuition or to pay off student loans. Americorps will award $4,725 for a year's worth of successful service. Peace Corps will cancel 15 percent of the debt owed on Perkins loans for the first two-year term and 20 percent for third and fourth years of service. For more information visit the Peace Corps Web site.

_ Military service: Those serving in the Army National Guard may be eligible to receive up to $10,000 through the Student Loan Repayment Program. Check with a local recruiter to determine your eligibility.

_ Career choice: Teachers who teach in schools that serve low-income students, have a shortage of teachers in a particular subject or teach disabled students in a public or nonprofit school are eligible for up to 100 percent of loan discharge.

Legal and medical professions have programs for student loan debt forgiveness. Visit the National Association for Public Interest Law Web site to get the facts on what you will have to do in the legal world.

The National Health Service Corps offers forgiveness programs to doctors who practice in regions that lack adequate health care. In addition, some hospitals and private health care facilities recruit candidates by dangling loan forgiveness.

_ Death and other: Permanent disability or death will allow for 100 percent forgiveness of your loan, but obviously have serious downsides that limit their popularity. If your school closes before you can complete your program of study or you were issued a false loan certification, the loan is 100 percent forgiven.

Carlos, when I was a youth in college, the pledge-master at Lambda Chi had a saying I heard more than once. He said, "If you want to play, you have to pay!" Buckle down and do the right thing: Pay off the loans!

Good luck!

(Steve Bucci is president of Money Management International Financial Education Foundation. Visit www.moneymanagement.org for additional debt advice. The Debt Adviser is a weekly feature of bankrate.com. For more stories visit scrippsnews.com)