Private Student Loans
For private loans, try to inquire with the private loaning company to see if they have options to lower your monthly payment. For instance, some companies offer:
- Modified payment terms because of short-term financial challenges,
- Reduced minimum monthly payments that are greater than or equal to the monthly interest rate, but still lower the payment they are currently making,
- Six-month, temporary graduate options that reduce monthly payments to the monthly interest rate or as low as $25, depending on what the borrower can afford.
You will have to contact your private lender to know about what loan modifications they can give. You can even ask if they have circumstantial loan reductions based on your current financial situation.
Federal Student Loans
For federal student loans that are under the government, there are certain programs that can help you make payments based on your living situation.
Income Driven Repayment
Income-driven repayment plans are useful if your federal student loan payments are higher than your income. These plans are useful because they take into account your income and family size, making sure that your monthly loan payments are affordable.
The US government offers four income-driven payment plans:
Deferment or Forbearance
Alternatively, you can apply for student loan deferment or forbearance. Both plans allow you to temporarily postpone or reduce your student loan payments, the main difference being deferment will not accumulate interest while forbearance will.
If you are interested in applying or have any questions regarding income-driven repayment, student loan deferment, or forbearance, talk to our Jackson bankruptcy lawyers at the Rollins Law Firm to know more.
Another option for modifying student loans is by filing bankruptcy. It is commonly said that filing for bankruptcy can wipe out student debt. This is not completely true. While bankruptcy does not normally discharge student loans, you can take extra steps to modify your student loans by filing for bankruptcy.
The different types of bankruptcy are organized into bankruptcy chapters in the US bankruptcy code and are named based on the chapter they are sorted under. For personal bankruptcies, the most common types are Chapter 13 and Chapter 7 bankruptcy.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy, also known as the wage-earner’s plan, is a form of bankruptcy that restructures your debts into a feasible repayment plan. It doesn’t discharge your student loans, but it can make paying for them easier in the following ways.
Lessened Monthly Obligations
Since Chapter 13 bankruptcies restructure your debts into a repayment plan that you can afford, your monthly obligation can be lessened into an amount that you can afford with your current income and living situation. Additionally, Chapter 13 plans can last up to 5 years. This gives you more time to work and increase your income, making paying your student loan more doable.
Automatic Stay Prohibits the Collection of Student Loans
When you file for bankruptcy, you will be automatically put under an automatic stay. This prohibits debt collectors from garnishing your wages, repossessing your vehicle, or asking you for debt payments. In other words, your loan company cannot harass you for as long as your bankruptcy case is ongoing. While it doesn’t lessen your debt, it can be a relief to not be hounded by people trying to make money (that you don’t even have) off of you.
Delayed Student Loan Payments
Since you are protected by the automatic stay, you don’t have to make student loan payments either. You can avoid making your loan payments until it is easier for you to do so.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy is also known as liquidation bankruptcy because it involves liquidating your non-exempt assets to pay off most of your debt and then discharging the remaining debt. Exempt assets are those that are considered necessary for you to keep on making a living, such as your house and a modest car. Everything else is generally considered non-exempt such as coin collections or extra properties.
Chapter 7 bankruptcy may seem more advantageous for many people since it can discharge most debts, but some people actually choose to file Chapter 13 bankruptcy so that they wouldn’t have to sell any of their assets.
Unfortunately, as mentioned earlier, student loans are generally considered to be nondischargeable debt. However, in certain scenarios, it can be discharged if you file for an adversary proceeding.
The Extra Step: Filing an Adversary Proceeding
An adversary proceeding is a process that tries to determine the “dischargeability of a debt”. According to the bankruptcy code, student loan debts can only be discharged if they will cause undue hardship on the debtor and the debtor’s family.
An adversary proceeding is pretty much a complaint or a lawsuit within a bankruptcy case, and for it to work, the plaintiff (you, or a person who wants to have his or her debt discharged) must first establish the undue hardship that the student loan will cause.
Establishing Undue Hardship
Establishing undue hardship is arguably the most difficult part of having student debts discharged because it is not generally available to all and is only granted to very few exceptional cases that meet specific conditions. The bankruptcy court will use some tests to see if you qualify as someone who will receive undue hardship.
The Brunner Test is named after Marie Brunner. Like many Americans, she acquired some debt so she could pursue higher education. Ten months after her studies, however, she filed a lawsuit against her lending company to have her loans discharged.
Unfortunately, she was unsuccessful and was not allowed to discharge her student debt. The reasons the court cited was that she wasn’t elderly or disabled in any way, she also didn’t have any dependents and couldn’t prove a foreclosure of her job prospects. Additionally, since it was so soon after her graduation, she wasn’t able to prove that she hasn’t yet been able to demonstrate trying to pay for her student debts in good faith.
The court rejected her case because they believed that there weren’t any hindrances to her finding a job and paying her debt, and if she really couldn’t afford to pay for them at the time, she could have pursued other less drastic ways to make her debt payable such as requesting a deferment.
This essentially means that to pass the Brunner Test, and to be able to establish undue hardship, you must be able to prove that job opportunities have been closed to you whether because of circumstance, disability, or age, that you have been trying to pay for your student loans in good faith, and that you have dependents to take care of.
All of these summed together can prove that having to pay for your student loans will put you under undue hardship.
Totality of Circumstances Test
In other cases, the court may use the Totality of Circumstances Test. This is similar to the Brunner test except that it doesn’t explicitly state that the person must have tried in good faith to pay their debts. However, the test has a clause that specifically states that it will take into account “relevant facts and circumstances” which may be interpreted in a number of ways.
So this means that while this test doesn’t specifically state that condition, the conditions to be met are still very high. To better your chances of proving unde hardship and discharging your debt, be sure to consult with our Mississippi bankruptcy lawyers today.
As can be seen in both tests, undue hardship status is granted to those who sincerely try to pay off their loans but are simply unable to because of their circumstances. It is also given to those who cannot afford to maintain a minimal standard of living, try as they might. A minimal standard of living can encompass the following:
- Your partner was seriously or permanently injured in an accident that resulted in disability,
- Dependence on public assistance to support your children,
- Reliance on disability checks as your only source of income,
- Reduction in your family income due to divorce, with no chance of regaining your previous family income,
- Having a child with serious, debilitating physical or mental illness or permanent injury
- Having a dependent that requires all-around care,
- Dependence on a family member for your needs,
- Having an income below the federal poverty level for several years without any sign of improvement,
- Being injured and disabled in a car accident.
If you have been experiencing any of these and have been struggling to pay off your debts without any hope that your living conditions would improve, then you may be qualified to have your student debts discharged. Consult with one of our Jackson bankruptcy lawyers to ask for legal help and see what you can do about your debt with regard to the law.
Consult with Our Jackson Student Loan Modification Lawyer!
Student loans are generally non-dischargeable, but the law still recognizes that in some cases, students are really trying to pay off these debts, but are rendered unable because of their circumstances. The law recognizes that in some such cases, it might be unethical to continually force a debtor to pay for their student loans.
If this sounds relatable to you, talk to our Jackson student loan modification lawyer at Rollins Law Firm, a student loan modification law firm. Let us help you find out what you can legally do to lessen your student debt burden. After all, getting a college degree is supposed to improve your quality of life, not make it worse.