Student Loan Debt – The Exception to the Bankruptcy Fresh Start

You file bankruptcy to eliminate your debt.  However the “fresh start” promise of bankruptcy is often not fully realized due to the fact that student loan debt is usually not eliminated in bankruptcy. Bankruptcy will allow you to get rid of the credit card bills, medical debt, and other unsecured debts, but the student loan debt will remain.

Currently there is an overwhelming amount of student loan debt – over $1 trillion in the United States!  Many people file for bankruptcy, eliminate all of their credit card debt, medical bills and the like but still emerge from bankruptcy with tens of thousands of dollars in student loan debt.  So the question of many of my clients is what, if anything, can be done to help with the student loans.

As with most legal questions the answer depends on several factors.  The first that needs to determined is whether your loans are federal or private.  Federal loans have several programs that can reduce your monthly payment or even eliminate the loan.  There are far fewer options when it comes to dealing with private student loans.

Federal Student Loan Options

Income Based Repayment (IBR) – under this program your monthly student loan payment can be reduced, sometimes even down to $0, based upon your household income.  After you pay the reduced IBR payment for 25 years any balance will be forgiven.

Pay As You Earn (PAYE) – this program is similar to the IBR program in that it can reduce your monthly payment.  However to be eligible for this program you must have no student loan balances prior to October 2008 and your student loan must have been taken out after October 2011.  Also like IBR, once you make the PAYE payment for 20 years any remaining balance will be forgiven.

Public Service Loan Forgiveness – if you work for the government or a 501(c)(3) non-profit organization you may qualify to have your student loans eliminated after paying on them for 10 years.

Teacher Loan Forgiveness – If you are a math, science, or special education teacher you may qualify to have $17,500 of your student loans forgiven after five consecutive years of teaching.

September 11th Forgiveness – Spouses of public servants or victims that either died or became totally disabled due to the events of September 11th can have their student loans forgiven.

If you believe that you may qualify for one of these programs or simply want to learn more about them give me a call and I would be happy to meet with you and discus your situation in detail.

Photo Credit: Occupy Graduation