Can I get student loan relief without filing bankruptcy?
It's almost impossible to have student loans discharged in chapter 7 bankruptcy. Your only option is to show that repaying your loans would cause an extreme hardship on you or your dependents. Very few people can demonstrate this to the court's satisfaction. If you are struggling to repay your loans, you may have other options. These can help eliminate some or all of your student loan debt. There may also be options available that can help keep you from defaulting on these loans in the future.
Loan forgiveness means that a portion of the balance or the entire balance on a student loan has been cancelled. You will no longer owe the forgiven amount to your lender. In order to apply to have your loans forgiven under this federal program, you must have a loan that is federally insured.
Federally Insured Government Loans
The federal government grants several types of insured loans for students seeking financial aid. These loans include the Direct Subsidized Loan for undergraduate students, the Direct Unsubsidized Loan for undergraduate, graduate and professional students, the Direct PLUS Loan for graduate and professional students and the Direct Consolidation Loan that combines several loans into one. Federal Perkins Loans for undergraduate and graduate students are low-interest loans specifically for people with extraordinary financial needs.
If you have one of the federally insured loans listed above, help may be available.
Who Qualifies for Loan Forgiveness?
The federal government has a loan forgiveness program that applies in many different situations. If you fall into the following categories, you may apply for loan forgiveness, discharge or cancellation:
- Your school closed while you were enrolled as a student or 120 days after you left
- You are totally and permanently disabled
- You did not authorize the loan, or your school falsely certified you as eligible for the program
- The lender did not repay the amount owed to the federal government when you withdrew from school early
- You have been teaching in an underprivileged elementary or secondary school for the past five years
- You are in a public service job and have already made at least 120 payments
Federal Perkins Loan Forgiveness
You will need to meet different criteria to qualify for cancellation or discharge of a Federal Perkins Loan. If you work in one of the following occupations, a percentage or the entire amount of your loan could be forgiven:
• Teacher or Head Start Worker
• Child or Family Services Worker
• Professional provider of early intervention services
• Member of the military serving in harm's way
• Medical technician or nurse
• Corrections or law enforcement officer
• Volunteer in the Peace Corps or ACTION
Altered Repayment Plans
If you cannot qualify for forgiveness, cancellation or discharge, you may ask your lender to alter your repayment plan. One such plan sets your monthly payments at $50 a month or lower for a maximum of 10 years. Another plan lowers your payments to an amount less than the one you are paying now, then gradually increases it every couple of years. Direct Subsidized and Unsubsidized Loans, Subsidized and Unsubsidized Federal Stafford Loans and PLUS Loans qualify under both plans.
A deferment will allow you to temporarily delay repayment of your federally insured loans. Interest will not be due during the deferment period, but the federal government may pay it for you if you have a Subsidized Federal Stafford Loan, a Direct Subsidized Loan or a Federal Perkins Loan. You will be required to pay the interest on the other loan types. You can qualify for a deferment in several instances, such as while you are unemployed, serving in the Peace Corps or on active military duty.
Those who do not qualify for the deferment may be able to obtain a forbearance. With a forbearance, your lender may reduce your payment or allow you to stop making payments for as long as one year. If you are experiencing an illness or a financial hardship, you may ask for a discretionary forbearance.
Your lender will be required to offer you a mandatory forbearance under certain circumstances. For example, if you are serving in the National Guard when the governor of your state activates your unit or are teaching in an underprivileged area, you will automatically receive the forbearance.
Chapter 13 Bankruptcy
Although your student loan debt cannot be discharged in a chapter 13 bankruptcy, the automatic stay prevents creditors from collecting the money they are owed. Your payments may be delayed until after your five-year chapter 13 bankruptcy is over. You may also be able to add your student loans to your bankruptcy repayment plan.
Speak to an Attorney before assuming there is nothing you can do
An experienced attorney with knowledge of bankruptcy and student loans may be a vital resource to help you resolve problems with student loans. Don't assume that because student loans are non-dischargeable, there is nothing you can do. There are many more options than discussed in this short blog. Speak to an experienced Attorney if you have student loan problems and need help.