As the burdens of increased student loan debt reach historic levels, many graduates are searching for answers that will allow them to stay current each month and preserve their hopes for a solid financial future. While the banks that issue overwhelmingly high interest student loans have enjoyed unreasonable Congressional protection, various options exist for relief from excessive student loan burdens from:
- Government Student Loan Debt –These are direct loans from the U. S. Department of Education.
- Private Student Loan Debt – These loans are issued by banks based on credit and loan applications.
While both private and government student loans are protected from elimination in Chapter 7 bankruptcy proceedings, Chapter 11 and Chapter 13 bankruptcy allows for the restructuring and consolidation of student loan debt into affordable monthly arrangements.
Solving Student Loan Debt Through Other Debt Relief
The first step to resolving student loan debt is the prioritization or elimination of all other forms of debt. Relief from other forms of less important debt allows limited financial resources to be preserved for student loan servicing and the reduction of principal balances.
Continual deferments on student loan obligations is a costly and temporary mistake made by thousands of Connecticut graduates. It merely avoids true student loan debt solutions.
Many people feel that their student loans are too overwhelming to approach or impossible to resolve, placing themselves in a type of student loan debt paralysis that requires the assistance of financial and legal professionals.
Consolidation Of Student Loans And Prioritization
Establishing a full spread sheet with the amounts and payment terms of your student loans is the initial step to evaluating an appropriate plan of attack. This allows graduates to choose from a variety of solutions; including:
- Consolidation
- Chapter 7 Bankruptcy Relief
- Chapter 13 Bankruptcy Relief
- Income Based Repayment Plans
Student Loan Debt And Chapter 7 Bankruptcy Hardship
While Chapter 7 bankruptcy will allow for relief from all forms of unsecured debt, private and federal student loans are deemed non-dischargeable without proof of hardship. Unfortunately, the standard for Chapter 7 student loan hardship relief is nearly impossible to satisfy. Chapter 7 relief for hardship is not a worthwhile avenue, despite recent extreme hardship cases.
Chapter 7 relief for all other forms of debt is helpful for student loan repayment but Chapter 7 does not discharge student loan debt.
However, Chapter 7 debt relief eliminates unimportant debt and allows for the proper allocation of income resources to more important student loan obligations. On its own, Chapter 7 should not be viewed as an avenue for the discharge of private or government student loan debt.
Chapter 7 Debt Discharge For Student Loan Relief
While Chapter 7 bankruptcy will not allow for the discharge of private or governmental student loans, it does provide general debt relief that can be used in combination with other avenues for overall student loan debt relief.
Since all forms of student loan debt relief won’t make room for payments needed for other debt obligations, relief from these obligations can be critical to your success under any and all student loan debt repayment programs; including:
- Student Loan Consolidation
- Income Based Repayment
- Chapter 13 Bankruptcy Plans
Income Based Repayment Plans
The recent strengthening of Income Based Repayment or IBR has made this program a viable option for dealing with overwhelming student loan debt. While the Income Based Repayment program is a step in the right direction, there are a number of important limitations that may reduce the relief granted; namely:
- Loan dates, rates and qualifications
- Gross income parameters
- Seasonal income adjustments
Always understand the payments, terms, and the rates. Reduced Income Based Repayment payments can create larger unpaid balances. It’s math, it’s important, and help is available.
At the Law Offices of Neil Crane, we’ve solved financial problems for thousands of Connecticut residents since 1983. To learn more about approaching and resolving your student loan debt problems, call us at 203-230-2233 for a free consultation with one of our knowledgeable attorneys.