High student loan payments have become a large part of the financial burden which leads to filing for bankruptcy. Most often, student loans cannot be discharged in bankruptcy, although a knowledgeable bankruptcy lawyer can often find ways for you to obtain relief or find resources such as deferments that enable you to get caught up on student loan payments.
The skilled and seasoned Ohio bankruptcy attorneys at Fesenmyer Cousino Weinzimmer understand that financial problems can and do happen to anyone. If you are swimming in unmanageable student loan debt, we can help.
Call one of our conveniently located office branches at 614-228-4435 (Columbus), 937-222-7472 (Dayton), or 877-654-5297 (Cincinnati), or email for your free consultation.
The Problem of Student Loans
Before 1976, student loans could be included in bankruptcy proceedings. However, because of high default rates, Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. This modified the bankruptcy code to allow the discharge of student loans only if the debtor is able to prove that repayment would cause undue hardship.
Unfortunately, higher education has become exorbitantly expensive, and students have to borrow large amounts to finance it. Many do not graduate, and even those who do have a hard time finding jobs that pay enough to cover their student loan costs, in addition to costs of living, such as housing, food, clothing, insurance, and cars.
Proving undue financial hardship has been very difficult, especially since undue hardship was never defined and case law has never led to a standardized definition. But now the Department of Education has announced it is reviewing when borrowers can discharge student loans, an indication it could become easier to discharge those loans in bankruptcy.
Bankruptcy and Other Available Options for Dealing with Student Debt
Currently, people with unmanageable student debt have several options to consider in addition to bankruptcy. Knowing all of your options before making a decision is important to making the most appropriate choices for your situation.
Deferment and Forbearance
Deferment and forbearance are similar loan conditions that allow you to pause payments without falling into loan delinquency or default. However, they come with different interest terms.
One of the main differences is that the interest on all types of student loans in forbearance continues to accrue. In deferment, however, interest does not accrue on specific types of direct loans. Additionally, the interest is not capitalized after forbearance ends. It is, however, capitalized after a period of deferment.
Pausing can bring much financial relief for a borrower. However, interest will continue to add up and may result in much longer overall repayment periods. One way to avoid accrued interest is to pay only the interest during loan pauses, which leaves you only with an unchanged principle once your pause ends.
Income-Driven Repayment
Income-driven repayment uses the amount of your yearly income to determine the amount of your monthly student loan payment. In some cases, it is entirely possible to have a student loan payment of $0. This zero-dollar payment counts toward your loan as would a payment from someone paying $500 under the same plan.
Keep in mind that income-driven plans stretch out over a 20- or 25-year period, in contrast to standard student loan repayment plans of 10 years.
Student Loan Forgiveness
Student loan forgiveness is alive and well but not as common as many would like. However, there are programs in place, such as the Public Service Loan Forgiveness (PSLF) program. The PSLF program forgives the student loans of borrowers who make 120 on-time loan payments while working for a qualified non-profit or government agency in service of the public.
Fesenmyer Cousino Weinzimmer: We fight for your future.
The Undue Hardship Exception
While the test for undue hardship varies by court, in general, you must meet the “Brunner test” and show . . .
- Poverty — You cannot maintain a “minimal standard of living” if forced to repay the loans.
- Persistence — Your circumstances won’t change for a significant amount of time.
- Good faith — You have made “good faith efforts” to repay the loan before filing bankruptcy.
Other courts may look at all relevant factors in your case to determine whether it is an undue hardship for you to repay your student loan, or they may use other tests. These tests are difficult to meet, which is why it is important for the government to reassess making it easier for student loans to be included in bankruptcy.
In the meantime, if you have a substantial amount of student loan debt, it makes sense to consult with a local bankruptcy attorney to see what can be done.
Does It Pay to File for Bankruptcy?
While in most cases, student loan debt is still not dischargeable in bankruptcy, bankruptcy does discharge most other debt such as credit card debt, medical debt, payday loans, etc. Having this debt discharged can free up more money so that you can make payments on your student loans and other obligations.
Contact Us for a Free Consultation
If you have questions about your student loan or any other debt, the seasoned and compassionate Ohio debt-relief attorneys at Fesenmyer Cousino Weinzimmer offer a free consultation to evaluate your entire financial situation. Even if total discharge of student loans is not possible, we can help you explore other options such as negotiating with the lender to get more favorable terms, modification or consolidation of the student loan debt, or filing for bankruptcy.
Delaying can only worsen your situation, so call one of our conveniently located office branches at 614-228-4435 (Columbus), 937-222-7472 (Dayton), or 877-654-5297 (Cincinnati) or email for your free consultation so we can determine what debt relief solutions will work best for you.
