Help With Student Loans!

What About Student Loans?

Can Filing Bankruptcy Get Rid Of Student Loans?

The answer is simple: No with one limited exception. It used to be that you could file bankruptcy and get rid of certain student loans. Well not any more not since 1998 when the law was changed. The idea is this: The government makes it easy to get student loans. Normally when you get a loan or credit from a bank or credit union there are certain hoops you have to jump through to make sure it looks like you can pay back your loans and to protect these lenders in case you don't. Well with student loans it's different. The government designed the student loan laws to make it easy for almost anyone to get student loans. Why? To encourage people just like you to stay in school and get educated. The price you pay is this. Getting rid of student loans is tough if not impossible. The government loosened things at one end and correspondingly tightened them at the other.


What Is That Limited Exception?

Section 523(a)(8) of Title 11 of the United States Code provides that student loans are not dischargeable except where the student loans "impose and undue hardship" on you. Sounds good right? I mean it's always a hardship to pay back something when you don't have the money right? But don't be fooled. That's not what "hardship" means at least not according to the Courts. Basically, to qualify for a "hardship" discharge of your student loans, you have to prove that you will not ever be able to pay back your student loans. Basically, most Courts have held that this means that you are stuck with your student loans unless you can prove that you are permanently and totally disabled from ever working for the rest of your life. Sounds harsh doesn't it? But that's the way it is.

So Can Bankruptcy Do Anything For Me?

Absolutely. Let's face it the people collecting on overdue student loans can be ruthless. You know this if you are behind in paying back student loans. Bill Collectors can make life very uncomfortable for you and for your loved ones. It's hard to focus on a new career, when the nasty calls and threats keep coming. Many times, they can even garnish your wages and this is in addition to the frustration you feel from fielding all the nasty calls.

Filing bankruptcy can't get rid of student loans. That's the bad news. It can't even stop the interest from accruing but it can do this. Filing bankruptcy can put the student loan people under control for up to 5 years and this can give you some breathing room and a chance to work into a better job or better pay so that you are in a better position financially to pay your student loans and a better frame of mind to deal with them. During that time no one can contact you regarding these past due student loans. That's a relief!

What about getting new student loans?

If you are in "default" on your student loans you most likely will not get another student loan. If you are in default and have tried to get more student loans you probably already know this. That is the key whether or not you are in "default".

If you are not in default and if you can qualify for more student loans you can still get more student loans even if you have filed bankruptcy. Section 525©) of Title 11 of the United States Code makes it illegal for you to be denied a student loan just because you have filed bankruptcy. This is powerful.


Student Loans: A Tough Nut To Crack


Student loans are not dischargeable in bankruptcy. There are, however, several options to help borrowers with defaulted student loans. The following is just an introduction to this topic, and only meant to point you in the right direction.


Loan Cancellation:

These types of federal remedies are available to you even if your student loan is not in default. Keep in mind, however, that not all types of loans are eligible for cancellation. To find out what type of loan you have, contact the National Student Loan Data System at 1-800-4-FED-AID, or online at https://nslds.ed.gov/nslds/nslds_SA/

The following are the main federal programs for student loan cancellation: Forms can be downloaded from (http://www.ed.gov/offices/OSFAP/DCS/forms.html).


Closed School: Applies to Direct Loans, Perkins Loans and FFELs. You must have been enrolled in school at the time of closure.
 False Certification: Applies to FFELs and Direct Loans, but not Perkins Loans. To qualify, you must show that you were not able to meet eligible state requirements for the job you were training for, or that the school altered or forged loan or check documents. This type of discharge applies only to loans received on or after January 1, 1986.
Total and Permanent Disability: This type of discharge applies to FFELs, Direct Loan and Perkins Loan. You must be found totally and completely disabled to be eligible for this type of discharge, and must provide documentation from a physician that you are unable to work because of an illness or injury that is expected to continue indefinitely or result in death. This type of discharge is not available to you if the condition existed at the time the loan was made. However, under new rules, pre-existing conditions may qualify if you suffered substantial deterioration after the loan was granted.
Unpaid Refund Discharge: As part of the 1998 Higher Education Act, this discharge will allow you, if you borrowed after January 1, 1986, to discharge the amount of the loan to the extent of the amount of refund owed to you, which the school failed to reimburse. Included in this discharge are reimbursements of tax refunds seized by the IRS in repayment of the student loan debt to the extent of a refund the school owed you, but never paid.
Repayment Options:

Even if you do not qualify for a loan cancellation, there are still some strategies to explore in dealing with defaulted student loans.


Loan Consolidation: This program allows those who do not qualify for a loan cancellation to consolidate their defaulted loans into a Federal Direct Consolidation Loan with an Income Contingent Repayment Plan (http://www.ed.gov/directloan).
Deferments and Forbearances: You may qualify for either a deferment or forbearance even if the loan is in default. The main types of deferments are: student deferments; unemployment deferments, and economic hardship deferments. However, keep in mind that deferments may not exceed a three year time period. Forbearances are available even when the loan is in default, but the interest continues to accrue during the forbearance period.
Offset of Federal Benefits:

Finally, borrowers whose student loans are in default often inquire as to whether their Social Security Benefits can be taken by the government in repayment of defaulted student loans. Under the 1996 law, the federal government can take benefits from Social Security Retirement and Disability Benefits, Certain Railroad Retirement Benefits, and Black Lung Part B Benefits. However, keep in mind that there are limits on the funds that the government can take, and that the borrower can fight back. You must receive notice of a hearing before any of your benefits are taken.

If you owe on a defaulted student loan, your hearing will be with the Department.
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