Car Accidents and Lawyers to Reduce Stress

Posted on: 5 January 2015

The cost of higher education has increased dramatically over the past few decades -- and many students have the loan balances to prove it. If your student loan payments are causing you financial hardship, you may be investigating various ways to eliminate this burden. However, student loans often have more staying power than other types of loans. Read on to learn about several situations that may provide you with some freedom from these loans (as well as one thing you should never do with your student loans).

Can student loans be discharged in bankruptcy?

Many years ago, there was no exclusion for student loans when filing for bankruptcy protection. If your income was insufficient to afford the loans, you could be eligible for a Chapter 7 discharge. However, a number of attorneys, doctors, and other high-paid professionals took advantage of this ability and would immediately file for Chapter 7 protection upon graduating -- with low income (but high income potential) and astronomical student loan balances.

Because of this, it is now very difficult to have your student loans discharged through the bankruptcy process. To receive a bankruptcy discharge, you must be able to demonstrate that you have suffered a disability or other setback so significant that you can never hope to repay these loans, and that even the minimum payments will cause you severe financial hardship. If you need help proving this, you may want to contact an experienced bankruptcy attorney, like Attorney John A McLaughlin Jr PC.

Can these loans be forgiven?

There are a number of federal and private programs that may allow your loans to be forgiven by the lender. Most of these programs are available to those who are employed in government, nonprofit, or other public sector jobs and whose income is insufficient to make the full payments on these loans. For many of these loan forgiveness programs, any remaining balance may be discharged after you've made a certain number of payments.

Your loan servicer may also have programs in place to allow you to extend your payment term, therefore lowering your monthly obligations. 

What if you simply stop paying your loans?

Whatever you do, don't stop paying (or default) on your student loans. A default can have the same effect on your credit score as a bankruptcy filing, and this negative impact will last until a number of years after you begin making payments again. In addition, if you've defaulted on a federally-backed student loan, the federal government may be able to withhold or garnish your income tax refunds and Social Security retirement payments.

If you feel you're close to defaulting, contact your loan servicer to determine your available options. Although some lenders are more flexible than others, none want you to stop paying your loans -- so they will generally try to find a solution that can work for you.