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How to Get Trade School Student Loans Canceled

If you took out student loans after 1985 to attend a trade or vocational school, you may be eligible to get your loans canceled (“discharged”).

What is a loan discharge?

A discharge excuses you from paying back your loan, including any fees or costs. Depending on the reason your loan is discharged, you might also be entitled to a refund of any amounts you have already paid voluntarily, through wage garnishment, or through interception of your tax refunds. You can get a discharge even if you have defaulted on your loan. Any negative credit history relating to the loan should be removed from your credit report and you will become eligible for federal student loans again.

What kinds of student loans can be discharged?

Discharges are available for Federal Direct Loans and Federal Family Education Loans, including GSL or Stafford Loans (both subsidized and unsubsidized), Supplemental Loans for Students (SLS), PLUS Loans for parents, Federal Consolidation Loans, and Perkins or National Direct Student Loans.

Who is eligible for a loan discharge?

You may be able to get your loans canceled if you took them out to pay for trade or vocational school, you received at least part of the loan on or after January 1, 1986, and one of the following applies:

  • the school closed before you finished the program;
  • the school falsely certified that you had the necessary qualifications to benefit from the program;
  • you could not meet certain requirements of the job the program trained you for;
  • your signature was missing or forged on your loan documents; or
  • the school owes you a refund.

These kinds of discharges are explained in detail below.

Unfortunately, you cannot get a loan discharged solely because the school trained you poorly or did not provide job placement or other services as promised.

Closed School

If the school closed while you were enrolled or within 90 days after you withdrew, you may be eligible for a “closed school discharge.” You will not qualify if you received a refund equal to the amount of the loan or if your school arranged for you to complete the program at another school (“teach-out”). You will have a good chance of getting your loan discharged as long as you can prove when you were enrolled. If you are granted a closed school discharge, you should get a refund covering any payments you made on the loan.

False Certification by the School: Ability to Benefit*

If you enrolled in vocational school and you did not have a high school diploma or GED, the school was required to certify your “ability to benefit” from the program in order for you to qualify for federal student loans. This is usually done by arranging for students to take an appropriate test. Students must pass the test to be eligible for federal loans to attend the school. Depending on when you enrolled, the school may have used other methods to certify your ability to benefit from the program, including providing a remedial educational program.

You may qualify for loan discharge if the school did not actually give the “ability to benefit” test or did not administer it properly; for example:

  • the school did not really require you to take the test or all parts of the test;
  • you were given more time to take the test than permitted;
  • the school supplied answers; or
  • the school passed you even though you did not get the minimum score.

Your chances of getting this kind of loan discharge will be much greater if you can provide evidence to support your story. One kind of evidence is written statements from other students at the school who had experiences similar to yours. Talk to a lawyer who might be able to get information from or about your school. The school should have a file on you that might include a test or references to a test. If the school has closed, you might be able to get access to your file by contacting:

New York State Education Department Bureau of Proprietary School Supervision Room 974 EBA Albany, NY 12234 (518) 474-3969.

In some cases, a government oversight agency has already conducted an investigation and determined that a particular school had “ability to benefit” violations. If such a determination has been made regarding your school, you have a strong chance of getting your loan discharged.
False Certification: Job Eligibility*

If, at the time you enrolled, you could not qualify under State law to work in the occupation the school was training you for, you also could not qualify for federal student loans for the program. If the school certified your eligibility for federal loans anyway, then you did not have the ability to benefit from the program, and you may be eligible for a loan discharge. Examples include:

  • you were barred from doing a particular kind of work due to your medical condition, age, or criminal record;
  • you did not have the minimum level of education required for a particular license or occupation; or
  • you could not speak the language required for the job.

You may need to speak with an attorney or the New York State Department of Labor to find out the legal requirements for particular jobs.

False Certification: Missing or Forged Signature*

If you believe that you did not sign or your signature was forged on the loan application, promissory note, loan check endorsement, or authorization for an electronic funds transfer, you may be able to get a loan discharge. However, even if you never signed the check, you cannot get the loan discharged if you actually received the money or it was credited against legitimate obligations you had to the school, such as tuition for a part of the program you actually finished.

To apply for this kind of discharge, you will need to supply five samples of your signature, including two documents that were signed within one year of the forged signature. (The New York State Higher Education Services Corporation may waive this requirement if the signature you are challenging is obviously different from your own signature.) If the loan application or disbursement is several years old, it may be very hard to find these samples. Examples of documents with dated samples of your signature include canceled checks, court papers, immigration documents, old driver’s licenses, your children’s report cards, and other papers from your file at the school.

*Note: False certification discharges are not available for Perkins Loans.

Unpaid Refund

If you signed up for a trade school but never attended or you left before the end of the program, and you never received a refund, you can apply for a loan discharge based on unpaid refund. In most cases, only part of the loan can be discharged. The amount you can get canceled depends on when you withdrew from the program, the school’s refund policy, and the type of loan you have. If you are granted an unpaid refund discharge, your loan obligations will be reduced by the amount that the school should have refunded to you, plus any interest and charges.

You may be able to get information on the school’s refund formula from the loan holder, the school, or the school’s written materials. If the school’s refund policy is not available, then the law provides the following formula: if you attended classes for less than 60% of the period covered by the loan, you are entitled to a proportionate refund. Therefore, if you never attended the program and the school’s refund policy is not available, you may be eligible for a 100% discharge. You cannot get a refund if you attended school for at least 60% of the loan period.

Additional Types of Discharge

Total and Permanent Disability

You can get your loans discharged if you are unable to work and earn money because of an injury or illness that is expected to continue indefinitely or result in death. Disability is determined based on your doctor’s certification. If you qualify, the loan will be conditionally discharged for a three-year period beginning at the date you became disabled. If you continue to satisfy the criteria for discharge throughout the three years, then the balance of the loan will be discharged at the end of that period. Your Social Security earnings records will most likely be checked during the three-year period to verify that you continued to be unable to work. Even a minimal amount of employment income during the conditional period could affect your eligibility for a disability discharge.

Bankruptcy

In rare circumstances, student loans may be discharged in bankruptcy, but only where repayment would cause “undue hardship” for you and your dependents. This means that you can show that you do not have enough income to make loan payments now and you do not expect to have sufficient income to do so in the future. Talk to a lawyer if you are considering bankruptcy.

Death of the Borrower

(or the student in the case of a PLUS loan)

You must provide a certified copy of the death certificate to get a discharge on this basis. Under exceptional circumstances, other reliable evidence will be accepted.

How do I apply for a loan discharge?

You can get an application for a loan discharge from the current holder of your loan. The current holder may be different from the lender that gave you the loan originally. Carefully examine recent loan statements, bills, and collection notices to determine who holds your loan. In New York, many defaulted loans are held by the United States Department of Education (ED): (800) 621-3115, and the New York State Higher Education Services Corporation (HESC): (800) 642-6234.

Each type of discharge has its own forms and requirements. Make sure you submit a complete application for the type of discharge you are seeking. If you qualify for more than one kind of discharge, submit an application form for each.

Your lender may take several months to more than a year to make a decision about your discharge application. Usually, the lender is required to stop attempting to collect from you while your application is under consideration. If collection activities continue, however, you can request an “administrative forbearance” from your lender. A forbearance will temporarily excuse you from making payments on your loan until the decision is made, but interest will still accrue on your loan during this period.

If your discharge application is denied, you have the right to have that decision reviewed. In most cases, you can appeal to the federal Department of Education (ED). If ED holds your loan and denied your initial application, but you now have additional information or evidence, you may resubmit your application to ED for reconsideration. If ED denies your request either on review or initial application, you can appeal to federal court.

New York State Tuition Reimbursement Fund

If the wrongful conduct by your school occurred within the last two years, you may be eligible for a tuition refund from the New York State Tuition Reimbursement Fund. You may request an interview to file a complaint by contacting:

Bureau of Proprietary School Supervision New York State Education Department 116 West 32nd Street, 14th Floor New York, NY 10001 (212) 643-4760.

You can file a complaint for any of the reasons discussed above. If your complaint is rejected, you can still request a loan discharge from your lender.

This article was posted March 28, 2007