Exploring Loopholes to Get Out of Student Loan Debt

The student loan debt crisis in the United States continues to grow, with over 45.3 million Americans holding a combined $1.77 trillion in student loans as of early 2024. Federal student loans make up the bulk of this debt, though many borrowers also owe private lenders. For many, these loans take decades to repay, impacting decisions like buying a home, starting a family, or saving for retirement.

One of the biggest challenges borrowers face is the accrual of interest, which can make loans balloon even when minimum payments are made. Some federal borrowers are on income-driven repayment (IDR) plans that keep monthly payments low but extend the term of repayment significantly, sometimes 20 to 25 years, while interest continues to pile up. 

For others, missed payments or loan default have long-term consequences, including damaged credit scores and wage garnishment. If the weight of student debt feels unmanageable, certain federal forgiveness programs might offer a way out, especially for those working in public service roles.

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Federal Loan Forgiveness Programs

For borrowers with federal student loans, specific government programs offer potential loopholes to get rid of student loans, legally and permanently, through public service, teaching, or volunteer work. These are not secret backdoors but legitimate options established by law.

Public Service Loan Forgiveness (PSLF)

PSLF forgives the remaining balance on Direct Loans after 120 qualifying monthly payments (10 years) under a qualifying repayment plan while working full-time for a government or nonprofit employer.

• You must be on an IDR plan (such as PAYE, REPAYE, IBR, or ICR).
• Only payments made after October 2007 count.
• As of April 30, 2025, over 49,000 PSLF buyback requests were pending, with 1,472 processed in April.

Teacher Loan Forgiveness

This program forgives up to $17,500 for teachers in math, science, or special education, and up to $5,000 for other eligible teachers who work five consecutive years in a low-income school.

• Loans must be Direct or Stafford Loans.
• Cannot overlap with PSLF for the same service period.

Military Service Loan Forgiveness

Active-duty service members may qualify for multiple federal programs:

• PSLF eligibility for military members who work in qualifying government roles.
• National Defense Student Loan Discharge for Perkins Loans, offering partial forgiveness based on years of service.
• Servicemembers Civil Relief Act (SCRA) also caps interest at 6% during active duty.

AmeriCorps and Peace Corps Forgiveness

Volunteers can receive:

• AmeriCorps members who complete a full year of service are eligible for the Segal AmeriCorps Education Award. As of 2024, the award amount is $7,395, which is equivalent to the maximum Pell Grant for the fiscal year.
• Peace Corps volunteers who have Perkins Loans may qualify for partial loan cancellation based on their service. The cancellation occurs in the following increments:
  
  • 15% for each of the first and second years of service
  • 20% for each of the third and fourth years
  • 30% for the fifth year

But what if you don’t qualify for forgiveness? Certain legal discharge options may provide other loopholes to get rid of student loans, especially in cases involving disability, school misconduct, or financial hardship.

Must Read: Consolidating and Refinancing Your College Student Loans

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Discharge Options for Federal Loans

For some borrowers, discharge can serve as a legal way to eliminate student debt entirely, without needing to complete a set number of payments or work in public service. These programs are lesser-known but offer real loopholes to get rid of student loans in specific life circumstances.

Total and Permanent Disability (TPD) Discharge

Borrowers who are unable to work due to a total and permanent disability may qualify for a complete discharge of their federal student loans.

• You can apply using documentation from the U.S. Department of Veterans Affairs (VA), the Social Security Administration (SSA), or a licensed physician.
• If approved, your entire loan balance is wiped out.
• There is a 3-year post-discharge monitoring period to ensure income stays below federal thresholds.

The application process is handled through DisabilityDischarge.com, and no loan payments are required during review.

Borrower Defense to Repayment

This option is for borrowers whose schools misled them, used deceptive practices, or violated certain state laws.

• Examples include false job placement rates or unfulfilled program promises.
• If your claim is approved, you could receive partial or full loan discharge, plus refunds of amounts already paid.
• Recent changes have expanded eligibility, particularly for students of for-profit institutions.

You must apply through the Federal Student Aid website, and supporting documentation (emails, ads, contracts) can help strengthen your claim.

Closed School Discharge

If your school closes while you're enrolled, or shortly after you withdraw, you may be eligible for a full discharge.

• Applies to Direct Loans, FFEL, and Perkins Loans.
• The school must have closed while you were enrolled or within 180 days of your withdrawal (as of recent policy updates).
• You cannot have completed your program or transferred credits elsewhere.

This discharge is not automatic, so it's crucial to file a request through the loan servicer or at studentaid.gov.

Unpaid Refund Discharge

If you withdrew from school and your institution failed to return unearned loan funds to the U.S. Department of Education, you could be entitled to this discharge.

• Schools are legally obligated to return funds if a student withdraws before completing 60% of the term.
• If they don’t, the borrower remains liable unless they pursue this specific discharge.

You’ll need to provide proof of withdrawal date and school records showing the refund wasn’t processed properly.

If discharge options don’t apply to your case, adjusting your monthly payments through income-driven repayment plans might be a more manageable long-term path.

Also Read: The Truth About Debt Consolidation Loans: Facts vs. Myths

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Income-Driven Repayment Plans

For federal loan holders who don’t qualify for forgiveness or discharge, Income-Driven Repayment (IDR) plans offer another legal route that can lower monthly payments and in some cases, even lead to cancellation after a set number of years.

Overview of IDR Plans

Income-Driven Repayment (IDR) plans are federal student loan repayment options that adjust monthly payments based on your income and family size, rather than the loan amount. These plans typically span 20 to 25 years, with any remaining balance forgiven at the end of the term.

There are four main types:

• Income-Based Repayment (IBR): Payments are generally 10% of discretionary income if you are a "new borrower" on or after July 1, 2014; otherwise, payments are 15% of discretionary income. Forgiveness occurs after 20 years for new borrowers or 25 years for others.
• Pay As You Earn (PAYE): Payments are 10% of discretionary income, capped at the 10-year standard repayment amount. Forgiveness is granted after 20 years
• Income-Contingent Repayment (ICR): Payments are the lesser of 20% of discretionary income or a fixed amount over 12 years, adjusted according to income. Forgiveness is available after 25 years.
• Saving on a Valuable Education (SAVE): This plan, which replaced REPAYE in 2023, offers payments based on income and family size.

Pros and Cons

Pros:

• Lowers payments, especially for those with low income.
• Prevents default and helps maintain eligibility for other programs like PSLF.
• Remaining balance is forgiven after 20–25 years (often tax-free under current law through 2025).

Cons:

• Interest may still accrue, increasing your total repayment over time.
• Forgiveness timelines are long.
• Must recertify income annually, or your payment can increase drastically.

Recent Changes

The Saving on a Valuable Education (SAVE) plan, introduced by the Biden administration in 2023, offers significant benefits for federal student loan borrowers. As of early 2025, the plan has been temporarily blocked by a federal court, placing over 8 million borrowers in a general forbearance status until at least December 2025.

Also, the SAVE plan, which replaced REPAYE, offers more generous terms:

• Forgives unpaid interest monthly (so balances don’t grow if you make full payments).
• Borrowers with original loan balances of $12,000 or less are eligible for forgiveness after 120 qualifying monthly payments (10 years). For balances above $12,000, the forgiveness period increases by 12 months for each additional $1,000 borrowed, up to a maximum of 20 years for undergraduate loans and 25 years for graduate loans.
• Protects more income from being counted toward discretionary income, leading to $0 payments for many low-income borrowers.

Aside from government programs, your workplace could be the unexpected key some employers now help repay student loans as part of your compensation package.

Further Read: Understanding the Difference Between Loan Servicers and Debt Collectors

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Employer Assistance Programs

As the cost of higher education keeps rising, a growing number of U.S. employers are offering student loan repayment benefits as part of their compensation packages. These programs are becoming a practical way for borrowers to find loopholes to get rid of student loans, especially private loans that don't qualify for federal forgiveness.

Employer Student Loan Contributions

Companies like Google, Fidelity, Aetna, and PwC have introduced programs that contribute a set amount toward their employees’ student loans, typically between $100 to $200 per month.

• 17% of large employers offered student loan repayment assistance as of 2021. This statistic is corroborated by other sources, such as HR Executive, which reported that 17% of employers provided this benefit in 2021.
• The Coronavirus Aid, Relief, and Economic Security (CARES) Act included a temporary tax provision that allows employers to contribute up to $5,250 per year tax-free toward an employee’s student loans through December 31, 2025.

These benefits often require continued employment or minimum tenure, and may apply only to full-time workers. Still, if your employer offers this, it can help reduce loan principal faster and cut down on years of repayment.

Tax Implications

Employer contributions used to be taxed as income. However, under the CARES Act Section 2206, and later extensions, student loan repayment contributions are treated like education assistance benefits, meaning:

• No federal income tax on amounts up to $5,250 annually.
• Employers can deduct these payments as a business expense.

Employees should still check their state tax rules, as not all states conform to the federal tax treatment.

While employer aid can make a real dent, your state may also offer targeted programs based on your job, location, or degree especially for teachers, doctors, and lawyers.

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State-Specific Programs

Many U.S. states run their own loan forgiveness or repayment assistance programs that are independent of federal options. These programs are one of the most overlooked loopholes to get rid of student loans, especially for borrowers in high-need professions.

State Loan Forgiveness Programs

States offer tailored relief for careers in health care, law, education, and public service. Here are a few examples:

• California’s State Loan Repayment Program (SLRP): Offers up to $50,000 in loan repayment for qualifying health professionals working in Health Professional Shortage Areas (HPSAs).
• New York State’s District Attorney and Indigent Legal Services Attorney Loan Forgiveness Program: Provides up to $20,400 for eligible attorneys.
• Massachusetts Loan Repayment Program for Health Professionals (MLRP): Offers up to $50,000 in exchange for a two-year commitment to serve in underserved communities.

These programs often require applicants to commit to working in specific areas or fields for 2–4 years. They’re competitive, but underutilized.

Eligibility and Application

Each state sets its own eligibility rules, including:

• Employment in a critical-need field (e.g., teaching in low-income schools, nursing in rural hospitals)
• Residency and licensing in the state
• Working full-time or meeting minimum service obligations

Application windows may be annual or rolling, so checking with your state’s Department of Education or Health is key.

If you don’t qualify for federal or state relief, and your employer isn’t pitching in, refinancing or settling private loans might be your best option though it comes with trade-offs.

Further Read: What Can a Debt Collection Agency Do?

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Private Loan Forgiveness and Refinancing

For borrowers with private student loans, relief options are more limited compared to federal loans. Still, there are some strategic loopholes to get rid of student loans, or at least reduce their impact, through lender programs, settlements, or smart refinancing.

Private Lender Options

Private lenders generally do not offer forgiveness the way federal loan programs do. However, some lenders may provide limited relief under certain conditions:

• Hardship forbearance: Temporarily suspending payments due to job loss or medical emergencies.
• Debt settlement: Some lenders may agree to accept less than the total balance if the borrower demonstrates long-term financial hardship. This often involves a lump-sum payment and may negatively affect your credit.
• Discharge upon death or permanent disability: While not all lenders offer this, some may forgive remaining balances if the borrower dies or becomes permanently disabled.

These options are typically not advertised. Borrowers must initiate the conversation and be prepared to provide supporting documents. Each case is handled individually, and outcomes vary.

Refinancing

Refinancing can help lower your interest rate, consolidate multiple loans, and reduce monthly payments but it comes with trade-offs:

• Borrowers with strong credit (680+) and stable income are more likely to qualify for lower rates.
• Refinance rates can drop significantly recently, some borrowers have seen fixed rates as low as 4.99%, down from original rates above 9%.
• Refinancing federal loans into a private loan disqualifies you from all federal protections, including income-driven repayment plans and future forgiveness options.

So refinancing is best suited for borrowers who:

• Have private loans only, or
• Are sure they won’t need federal protections and want to save on interest

A clear benefit of refinancing is the ability to pick new repayment terms, often between 5 to 20 years, which gives you control over your monthly obligation.

If you're overwhelmed or unsure which option to pursue, getting expert guidance can prevent costly missteps and protect you from predatory schemes.

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Legal and Financial Counseling

When trying to find loopholes to get rid of student loans, it’s important to separate credible help from high-risk advice. Consulting with professionals can provide clarity, especially in complex or high-debt situations.

Financial advisors and debt attorneys can:

• Analyze your repayment options
• Review settlement offers from private lenders
• Assist with paperwork for federal programs or disputes
• Help assess the long-term impact of refinancing or default

A trusted option for student loan collection support and long-term account management is Shepherd Outsourcing Services.

Shepherd works with individuals and small businesses to:

• Trace debtor information and verify assets
• Handle difficult collection matters ethically and efficiently
• Provide personalized client support tailored to each case

They’re known for their transparency and dedication to helping clients recover and manage debt portfolios, including unresolved student loan balances. Learn more on their About Page.

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FAQs

1. Can I negotiate a settlement on my private student loan?

Yes, it’s possible to negotiate a settlement with private lenders, especially if you're facing financial hardship. Lenders may agree to accept less than the full balance, but this typically requires demonstrating significant financial difficulty and making a lump sum payment. Keep in mind, this may impact your credit score.

2. How does the Public Service Loan Forgiveness (PSLF) work if I’m not currently in a qualifying job?

If you are not working in a qualifying public service job, you won’t be eligible for PSLF. However, you can switch to a qualifying employer or apply for PSLF if you do meet the requirements later on. It’s crucial to ensure that your loan payments are made under a qualifying repayment plan like Income-Driven Repayment (IDR).

3. Can I apply for federal student loan forgiveness if I have private loans?

No, private loans are not eligible for federal student loan forgiveness programs like PSLF or Teacher Loan Forgiveness. However, some private lenders may offer other forms of relief such as hardship forbearance or loan discharge in cases of death or permanent disability.

4. What should I do if my school closes while I’m enrolled?

If your school closes while you're enrolled or within 180 days of withdrawing, you might be eligible for a Closed School Discharge. This discharge can forgive your student loans if you were unable to transfer to another institution or complete your program. Make sure to file a request through your loan servicer to apply for this discharge.

5. What impact does filing for bankruptcy have on student loans?

While bankruptcy can discharge most types of debt, federal student loans are not easily wiped out by bankruptcy. However, if you can prove "undue hardship," you may be able to have your student loans discharged. This requires a legal process known as an "adversary proceeding," and the standards for "undue hardship" are quite strict.

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