What Relief Is Currently Available to Student Loan Borrowers?

The first form of relief is to do a refinance. If it’s a private student loan, it can sometimes be refinanced to get a lower interest rate. There is also deferment and forbearance, two programs that allow you to pause your payments for a certain period of time. In deferment, no interest accrues during the time that you are not paying, whereas with forbearance, the interest continues to build on the loan. You’ll end up owing more in a forbearance situation than you would have had you deferred the loan, and there are different requirements for being able to do either of those.

There are also different kinds of income-driven repayment plans. Essentially, the program you would qualify for depends on what kind of loan you have, but typically, you pay a percentage of your discretionary income into a plan for a period lasting between 20 to 25 years. After that period of time, if you’ve made all of your payments, the debt is forgiven.

Some borrowers in certain professions might be eligible for public service loan forgiveness. If they make ten years of payments and they work in a public service position, the rest of their loan will be forgiven. For borrowers who are totally and permanently disabled, there is a disability discharge.

There is a bankruptcy undue hardship, which I mentioned before, but typically, the borrower would have to have a disabled dependent with a high ongoing cost of care. An undue hardship might apply to private student loans that don’t offer a disability discharge or income-driven repayment because when many apply for an undue hardship in a bankruptcy, the government’s defense is that they could have qualified for other assistance. If that assistance wasn’t on the table, then those defenses wouldn’t exist and the judge may be more inclined to grant it.

Some student loans do not satisfy the requirements for a qualified education loan, such as bar study loans, residence and relocation loans, and loans at unaccredited colleges. Those may be eligible for a discharge in a bankruptcy without having to prove undue hardship.

Apart from those exceptions, most of the federal loans and private loans are non-dischargeable. There are disabled borrowers who are ineligible for total and permanent disability discharge due to their income being above the poverty line, yet they don’t have sufficient income to repay the student loan debt. They could be eligible for undue hardship discharge, as could a borrower who has an excessive amount of debt that prevents them from being able to afford even the minimal payments required to do an income-driven plan. Borrowers who are not eligible for income-driven repayment on a federal plus loan may also be eligible.

As you can see, there are very limited situations in which a debtor in a bankruptcy can qualify for an undue hardship, and this is why it’s very difficult to get rid of student loans. Even if you look at the bankruptcy options and add the different options that are offered outside of bankruptcy by the government, there are not a lot of options for most people, so they get stuck with the student loan debt forever, in most cases.

What Is the Proposed Bill Called the Fresh Start of Bankruptcy Act of 2021?

It’s a bill that hasn’t been passed but has been put to Congress. What it would do is make federal student loans eligible for a discharge in a bankruptcy proceeding ten years after the first loan payment is due. It’s similar to where things stood back in the early days. Until 1976, you could discharge student loans across the board if you filed bankruptcy and were eligible for discharge. Instead of having to wait the five or seven years that were originally put on as extra hurdles, this bill would make it ten years. So, once you start repaying and are ten years down the line or farther, if you file bankruptcy, then you can discharge the student loan. This, however, would only apply to federal student loans.

Under this act, it would retain the existing undue hardship option for both private student loans and federal student loans that have not been due for more than ten years. The same rules would apply if the loan is through a private entity. If the borrower was in year two or year five of repayment, they would only be eligible for what’s currently available, but if someone waited ten years after the first payment was due and had a federal student loan, then those could be wiped out.

Supporters of this bill hope to make institutions look at these loans more carefully before they make them. After all, anything that’s discharged or forgiven on these loans falls to the taxpayer. This would increase institutional accountability by creating provisions that require colleges with more than one-third of students receiving federal student loans to partially refund the government if a student loan is later discharged in a bankruptcy. By making the college or university liable for some of the bad debt should students file bankruptcy, what they are trying to do is make the institutions take a closer look at their lending practices.

For more information on Relief for Student Loan Borrowers in the US, an initial consultation is your next best step. Get the information and legal answers you are seeking by calling (443) 492-9003 today.