KHESLC Loan Forgiveness: Who Runs It and How to Qualify

The Kentucky Higher Education Student Loan Corporation (KHESLC) forgives up to $17,500 in student loan debt for Kentucky borrowers who meet specific criteria. A 15-member board of directors sets policy, while an executive leadership team runs day-to-day operations.

If you're servicing FFEL, Perkins, or KHESLC-originated loans and you've made 48 consecutive monthly payments, you may qualify. Here's how the program works, who controls it, and what you need to do.

Who Controls KHESLC's Loan Forgiveness Program

KHESLC is a nonprofit corporation created by Kentucky law (Kentucky Revised Statutes 164A.050). It's classified as an independent municipal corporation and political subdivision of the Commonwealth. That means it's technically a state entity, but it operates with more autonomy than a typical government agency.

The organization is governed by a 15-member board. Ten members are appointed by the Kentucky governor. The other five are ex officio members who hold their seats because of their state positions:

• Kentucky State Treasurer
• President of the Kentucky Council on Postsecondary Education
• Secretary of the Finance and Administration Cabinet
• Kentucky Commissioner of Education
• A president from an independent Kentucky college or university

This board sets the overall strategy, including who qualifies for loan forgiveness and how much debt can be forgiven. The executive leadership team handles implementation: processing applications, verifying payment history, and disbursing forgiveness.

KHESLC's loan forgiveness program isn't federally funded. It's a state-level initiative, which means eligibility rules differ from federal programs like Public Service Loan Forgiveness (PSLF) or income-driven repayment forgiveness.

KHESLC Loan Forgiveness Eligibility

You must meet three core requirements to qualify for KHESLC loan forgiveness:

1. Loan Type

KHESLC forgives debt only on specific loan types. Eligible loans include:

• Federal Family Education Loans (FFEL) serviced by KHESLC
• Federal Perkins Loans held by KHESLC
• Kentucky Higher Education Student Loans originated or purchased by KHESLC

Federal Direct Loans—the most common type issued since 2010,are not eligible. Direct Loans are serviced by federal contractors like Aidvantage or MOHELA, not KHESLC. If you're unsure what type of loan you have, log into studentaid.gov and check your loan servicer. If KHESLC isn't listed, you don't qualify.

2. Payment History

You must make at least 48 consecutive on-time monthly payments before applying. That's four years of uninterrupted payments. A payment is considered on-time if it's received within 15 days of the due date. If you miss a month or defer your loans, the 48-month clock resets.

Forbearance periods,when you temporarily stop paying but interest still accrues,do not count toward the 48 payments. Only months in which you made a full payment count.

3. Financial Hardship

KHESLC loan forgiveness is designed for borrowers facing financial difficulty. You'll need to demonstrate hardship, which typically means one of the following:

• Income below 200% of the federal poverty line
• High debt-to-income ratio (generally above 20%)
• Documented medical expenses, unemployment, or other financial strain

KHESLC reviews hardship claims case by case. If you're denied, you can reapply after six months if your situation worsens.

How Much Debt Does KHESLC Forgive

KHESLC forgives up to $17,500 of your remaining loan balance. That cap applies per borrower, not per loan. If you owe $25,000 across three KHESLC loans, you'll receive $17,500 in forgiveness. You're still responsible for the remaining $7,500.

If you owe less than $17,500, KHESLC forgives your full balance. The program does not require you to continue making payments after forgiveness. Once approved, the debt is wiped.

Forgiven amounts are reported to the IRS. Under current federal law, student loan forgiveness is not taxable through 2025. That exemption expires on December 31, 2025. If you receive forgiveness after that date, the IRS may treat the forgiven amount as taxable income. Kentucky does not tax forgiven student loan debt at the state level.

How to Apply for KHESLC Loan Forgiveness

KHESLC does not accept rolling applications. The program opens once a year, typically in late summer. Applications are accepted on a first-come, first-served basis until funds run out. In 2024, the program closed in under six weeks.

Here's how to apply when the window opens:

1. Confirm your loan servicer. Log into studentaid.gov and verify that KHESLC services your loans. If not, you don't qualify.
2. Gather financial documents. You'll need recent pay stubs, tax returns, and proof of expenses. KHESLC uses these to assess financial hardship.
3. Verify payment history. Request a payment history report from KHESLC showing 48 consecutive on-time payments.
4. Submit your application through KHESLC's portal. Applications are only accepted online. Mail and email submissions are not processed.
5. Wait for approval. KHESLC reviews applications within 60 days. If approved, forgiveness is applied to your account automatically.

If you're denied, KHESLC provides a written explanation. You can appeal within 30 days if you believe the denial was based on incorrect information.

What If You Don't Qualify for KHESLC Forgiveness

If your loans aren't eligible or you haven't made 48 payments yet, you still have options. Start by checking whether you qualify for federal forgiveness programs. Public Service Loan Forgiveness (PSLF) forgives your balance after 10 years of payments if you work for a government or nonprofit employer. Income-driven repayment plans forgive remaining balances after 20 or 25 years.

If you're in default or facing a lawsuit, settlement may be your best move. Our bankruptcy screener takes two minutes and tells you whether filing could discharge your debt. Chapter 7 wipes private student loans if they're not classified as qualified education loans. Federal loans are harder to discharge, but it's possible if you prove undue hardship.

Alternatively, you can negotiate a settlement. KHESLC rarely settles for less than full balance, but private lenders often accept 40-60 cents on the dollar. If you're judgment-proof,your income is exempt from garnishment,you may not need to pay anything. Learn more about bankruptcy and settlement strategies here.

KHESLC vs. Federal Loan Forgiveness

KHESLC's program is smaller and more restrictive than federal forgiveness options. Federal programs like PSLF require 120 payments (10 years), but they forgive your entire balance with no cap. KHESLC requires 48 payments (4 years) but caps forgiveness at $17,500.

KHESLC also limits eligibility to FFEL, Perkins, and KHESLC-originated loans. Federal Direct Loans, which make up 90% of federal student debt, don't qualify. That means most Kentucky borrowers won't benefit from KHESLC forgiveness.

If you have both federal and KHESLC-serviced loans, prioritize federal forgiveness programs. They offer broader relief and don't expire annually. Apply for KHESLC forgiveness only if you don't qualify for federal options.

Common KHESLC Loan Forgiveness Mistakes

Borrowers lose out on forgiveness because they make avoidable errors. Here are the three most common:

1. Applying with the Wrong Loan Type

Federal Direct Loans are not eligible. If studentaid.gov lists a servicer other than KHESLC, you won't qualify. Check before you apply.

2. Counting Forbearance or Deferment Toward the 48 Payments

Only months in which you made a full payment count. Forbearance and deferment pause payments, but they don't count toward forgiveness eligibility.

3. Missing the Application Window

KHESLC's application period is short. Set a calendar reminder for late July. Applications submitted after funds run out are rejected, even if you qualify.

What Happens After Forgiveness

Once KHESLC approves your application, forgiveness is applied within 30 days. You'll receive a confirmation email showing your new balance. If your balance was under $17,500, it drops to zero. If you owed more, the $17,500 is subtracted and you continue paying the remainder.

KHESLC reports forgiveness to the three major credit bureaus. Your account is marked as paid or partially paid, depending on whether you had a remaining balance. This does not hurt your credit score. In most cases, your score improves because your debt-to-income ratio drops.

Forgiveness is permanent. KHESLC cannot reverse it unless you obtained it through fraud. You do not need to reapply or maintain eligibility after approval.