Unpaid Refund Discharge: How to Cancel Loans for Money Your School Never Returned

If your school never returned unused loan funds to your servicer after you withdrew, you could wipe out that debt completely. It's called the Unpaid Refund Discharge — and it could save you thousands.

Why This Matters Now

Since May 2025, federal collections like Wage Garnishment and Tax Refund Seizures are back on. That means if your school failed to return funds when you dropped out, you're not just out money—you could be hit with aggressive collection actions.

But here’s the catch: Most borrowers don’t even realize they qualify.

What Is Unpaid Refund Discharge?

Unpaid Refund Discharge is a federal relief option that cancels part or all of your federal student loan if your school was supposed to issue a refund after you withdrew but didn’t.

How It Works:

• If you withdrew before completing 60% of the enrollment period, the school was required to refund unused Title IV (federal) loan funds.
• If the school didn’t do that, you’re not responsible for that portion of the loan.
• You can apply for a discharge to cancel that portion—and in many cases, it's substantial.

Who Qualifies?

You may be eligible if:

• You withdrew before completing 60% of your term
• Your school was supposed to refund part of your loan to the servicer
• The refund was never made

Documentation Needed:

• Proof of withdrawal date
• Loan disbursement records
• Any school communications (optional but helpful)

Why It’s Overlooked

Most borrowers think their loan balance is final. But if your school went out of business or simply mishandled the refund process, you're not stuck with that debt.

Schools like ITT Tech, Everest, and DeVry have all faced scrutiny for refund issues. Thousands of students from these and similar institutions qualify—but never apply.

Real Example: Amanda, CA

Amanda withdrew from a private business college in California 5 weeks into the semester. Her $6,800 loan should’ve been partly refunded. The school never processed it.

After applying for Unpaid Refund Discharge, $3,400 of her loan was wiped clean. She avoided garnishment and default.

Check Your Eligibility Now

➡️ See if you qualify in 60 seconds

How to Apply

1. Contact your loan servicer and request the Unpaid Refund Discharge application.
2. Gather proof of your withdrawal and disbursement timeline.
3. Submit completed forms and documentation.

Need help? Speak with a specialist now

Benefits at a Glance

• Cancel the portion of loans your school failed to refund
• Stop garnishment, tax offsets, or default
• No cost to apply
• Often pairs well with Borrower Defense to Repayment for full discharge

Don’t Pay Loans Your School Should’ve Refunded

Tens of thousands of borrowers are stuck with debts they never owed. Don't be one of them.

Start your loan relief request today or speak with a specialist now to clear your path to forgiveness.

Frequently Asked Questions (FAQs)

What is the Unpaid Refund Discharge program?

Unpaid Refund Discharge allows federal student loan borrowers to have part of their loans forgiven if their school failed to return unearned Title IV funds after they withdrew from a program.

Who qualifies for Unpaid Refund Discharge?

You may qualify if you withdrew before completing 60% of the enrollment period, and your school failed to refund the unused portion of federal student aid (such as Direct Loans or Pell Grants).

What types of loans are eligible for this discharge?

Only federal loans—specifically Direct Loans and FFEL Loans—are eligible. Private loans do not qualify.

How much of my loan can be discharged?

Only the portion of the loan that your school should have refunded to the federal government will be discharged—not the full loan amount.

How do I apply for an Unpaid Refund Discharge?

Submit a written application to your loan servicer, including documents like your withdrawal date, enrollment records, and any correspondence with the school.

Can I still apply if my school has closed?

Yes. If your school has closed and failed to return required funds, you can still apply with the proper documentation.