Who qualifies for debt forgiveness?

If you’re struggling with large amounts of debt and frequently fall behind on payments, debt forgiveness could be a solution. It might not wipe out all of your debts, but it could ease the burden and help you get your finances back on track.

Debt forgiveness could help with credit cards, back taxes or student loans. But to qualify, you’ll typically need to meet certain conditions. This might mean proving financial hardship or making a certain minimum number of payments on your debts. Some forgiveness programs will have stricter criteria than others.

How debt forgiveness works

The total household debt in the United States is $17.69 trillion. This breaks down to roughly $134,590 per household (based on an estimated 131,434,000 total households).

For many, keeping up with — and paying off — this much debt can be a major struggle. That’s where debt forgiveness comes in.

Debt forgiveness is when a lender or creditor agrees to wipe out all or part of a debt. You may be able to apply if you have unsecured debts like credit cards, student loans or tax debt. Medical debts and mortgages may also qualify for some types of relief.

“Consumers can request debt forgiveness directly by contacting their creditors, providing detailed documentation of their financial hardship, and negotiating terms for debt relief,” says Josh Richner, Founder and Senior Debt Advisor at FaithWorks Financial.

Lenders aren’t obligated to wipe out your debts, however. Even if you meet the conditions, the process and how much debt they’ll eliminate depends on the lender and the type of relief. You may need to contact your lender directly to see what’s available and how their process works.

How to qualify for different types of debt forgiveness

Only certain types of debt may be eligible for forgiveness. Even then, it’s not always easy to qualify.

“Debt forgiveness should not be assumed to be readily available; it typically requires substantial proof of hardship,” says Richner. “A few months out of work may be a significant hardship to you and your household, but it doesn’t fall outside of the norm and, while they may offer a grace period, they’ll likely expect you to resume payment as soon as you are able.”

It’s good to know your options. These are the most common types of debt forgiveness and how to qualify.

Student loans

Student loans are one of the most prominently talked about options for debt forgiveness. If you have federal student loans, you may qualify for relief in one of the following ways:

• Federal Perkins Loan Cancellation: Some professionals — including special education teachers, law enforcement professionals, first responders, attorneys, military personnel and health care professionals — may qualify for up to 100 percent loan cancellation after five years of eligible, full-time service.
• Public Service Loan Forgiveness program: If you’ve made 120 qualifying payments under an income-driven repayment plan or standard repayment plan while employed full-time for a nonprofit, local, state, federal or tribal organization, your remaining debt could be forgiven.
• Teacher Loan Forgiveness programs: If you’ve worked full-time as a state-certified teacher for the past five years, you may qualify for up to $17,500 in Direct Subsidized and Unsubsidized loan forgiveness.

You could also qualify for student loan forgiveness if you have federal loans and have consistently paid them under an income-driven repayment (IDR) plan. There are several IDRs, including:

• Income-Based Repayment Plan (IBR)
• Income-Contingent Repayment Plan (ICR)
• Pay As You Earn Repayment Plan (PAYE)
• Saving on a Valuable Education (SAVE) Plan

If you’ve consistently repaid your student loans under these plans, your remaining balance will be forgiven at the end of the payment period — either 20 or 25 years.

Federal student loan forgiveness may also be available in certain niche situations, such as if your school closed while you were still enrolled. If the borrower filed for bankruptcy or passed away, these loans may be discharged or canceled.

Private student loans aren’t generally eligible for federal loan forgiveness. If you’re struggling with private loans, speak with your lender about your options.

Taxes

If you can’t pay your taxes, relief may be available in one of two ways:

• Offer in Compromise (OIC): You may qualify for an OIC if you can prove sufficient financial hardship. This won’t cancel your debt, but it could reduce it. Applying is free, but there are no guarantees of success. Eligibility is based on your income, assets, expenses and ability to pay. If your application is rejected, you have 30 days to appeal the decision.
• Repayment plan: You may be able to set up a short- or long-term repayment plan with the IRS. You’ll still have to pay what you owe, but you’ll have more time to do so.

Medical debt

Medical debt can be overwhelming. The Kaiser Family Foundation (KFF) reported that people across the United States owe an estimated $220 billion in medical debt — and that approximately 3 million adults owe upwards of $10,000.

The good news is there are several forms of medical debt relief available, including:

• Assistance via your medical provider: Nonprofit providers are legally required to provide charity care or financial aid to low-income individuals. To qualify, you may need to write a letter explaining why you need assistance.
• Medical credit card: These work similarly to regular credit cards, but you can only use them for qualifying medical expenses. Rates may be high, but some cards come with a promotional rate or deferred interest. For example, CareCredit is a health and wellness credit card with an interest-free period of up to 24 months.
• Nonprofit organizations: Some nonprofits, like Undue Medical Debt, provide relief to those with excessive amounts of medical debt. Look into local organizations to see what’s available and their criteria.
• Payment plan: Some providers offer relief in the form of payment plans. These work by splitting your bill over a series of payments. Depending on the plan, your payments may be interest free.

Mortgage debt

Very few mortgage lenders will forgive your debt. However, you may find relief in a few ways:

• Forbearance: This is when your mortgage loan servicer agrees to temporarily pause or lower your monthly payments. During this time, your loan will generally still incur interest, meaning you’ll have to pay more later. You may need to provide proof of significant financial hardship to qualify.
• Mortgage refinance: If your credit score is high enough, you may qualify for a mortgage refinance. This could reduce your monthly payment, lower your interest rate or get you a longer repayment term.
• Payment modification: Depending on your financial situation, your lender may be willing to extend your repayment term or lower your interest rate. This will lower your monthly payment but could mean paying more over time with interest.
• Short sale: If you want to sell your home, ask your lender if a short sale is an option. If it is, you might be able to sell for less than what you currently owe. You won’t get any cash from the deal, but your lender will forgive your remaining mortgage balance.

You may also qualify for financial relief if you have an FHA loan. This could be in the form of a forbearance plan, a loan modification program or foreclosure. Learn more about your options on the HUD website.

Credit card debt

While there aren’t any specific forgiveness options for credit card debt, you could apply for a credit card hardship program. This could get you a lower interest rate, waived late fees, small minimum payments or even a temporary payment pause.

You’ll generally need proof of financial hardship to qualify. This may include a medical emergency or loss of employment. Reach out to your card issuer to see what’s available and their requirements.

If your credit card company doesn’t offer a hardship program, here are some alternatives:

• Balance transfer card: If you have good credit, you may be eligible for a balance transfer card with a 0 percent introductory APR.
• Credit counseling: This can help you get your payments back on track. Look into nonprofit and for-profit organizations like credit repair companies.
• Debt consolidation loan: Consolidation lets you roll several high-interest debts into one loan, ideally with a lower interest rate. This can make it easier to keep up with payments and save you money on interest.
• Debt settlement: Usually done through a debt settlement company, a settlement plan can reduce what you owe. However, your credit score may take a hit.

As a last resort, you could also consider bankruptcy.

“If things are really bad, bankruptcy might be an option,” says Joseph Camberato, CEO at National Business Capital. “It can protect you from your debts if you can prove you can’t repay them. But, bankruptcy has long-term consequences, like damaging your credit for seven years.

“Before considering bankruptcy or trying to get the whole balance forgiven (which is tough), look into a structured payment plan to pay off your debt over time. Another option is to work with a debt relief company that can help you negotiate a payment plan with your creditors.”

The bottom line

If you’re struggling with debt, take action as soon as you can to get ahead of the situation. Not all types of debt are eligible for forgiveness, but some are, including federal student loans and certain other unsecured debts. Reach out to your creditors to see if they offer any debt forgiveness programs and their requirements.

“Successful debt forgiveness often requires compelling, documented proof of significant hardship,” says Richner. “That may be sharing the realities a family faces after a tragic loss or displaying an unchangeable inability to repay the debt with no viable chance of collection.”