Cancellation of Loan and The Smartest Strategy

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There is a provision for cancellation or discharge of loans. Loans like Perkins, PLUS, Stafford can be discharged or cancelled.

The provisions are-

  • If you become permanently disabled
  • If you meet an unfortunate death
  • If you start teaching in low income areas
  • Law enforcement
  • If you work with disabled or high risk children and help their families who are categorized into low income groups


College Cost Reduction and the Access Act have a provision that forgives Stafford loan in exchange of public services. Taking up government or public sector jobs, military, serving people in non-profits organizations have a great chance to qualify for this provision.

However, making 120 one time payments after OCT -01-2007 – will help in forgiving direct loans.

Note- The forgiven loan is accounted as taxable income.


You can prepay federally guaranteed loans and avoid penalties. All you have to do is pay up your loans as fast as possible – It will save you a lot of money as the interest will be reduced.

You should always consider prepaying the loans that have a higher interest.

Example- Paying up you Perkins loans with 5% interest rate doesn’t make sense. Rather paying up for loans with higher interest rates, like the unsecured bank loans, credit card bills (with rates that vary from 10-12 percent) will help you save dollars.

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