Overwhelmed With Student Loan Debt? Start Managing Loans With These Steps

Student loan debt is the nation’s second highest type of consumer debt, standing at $1.4 trillion dollars, according to the Federal Reserve.  If you are one of the millions of consumers with student loan debt, it is important that you stay on top of your loans to prevent them from falling into default. You need to know about the different repayment options that might be available to you and, if you are not sure of what they are, you should contact your lender and/or servicer as soon as possible to find out.

Federal Student Loans
There are two types of student loans and the repayment options are different with each.  There are more options if your loans are federal loans.  (You can find out if a loan is a federal loan by looking in the National Student Loan Database System that can be accessed at www.nslds.gov.)  The United States Department of Education offers “income-driven” repayment options on federal student loans, which can reduce high monthly payments and provide you with the flexibility to choose a plan that works for you.  In addition, there are some cancellation and forgiveness options that may be available for federal loans. If you work full-time in a non-profit or government agency, you should be eligible for the Public Service Loan Forgiveness program; if you have an ongoing disability, you might be able to obtain a “Total and Permanent Disability” discharge; if your loans were fraudulently obtained or you did not authorize those loans to be taken out, you might be able to cancel them; and if an educational institution closed before you obtained your degree, there should be cancellation options available.

Private Student Loans
If your loan is not listed in the National Student Loan Database System, it probably is a private loan, the terms of which would have been defined in the original promissory note that you signed when you got that loan. Unlike federal student loans, private lenders are not required to offer you income-based repayment options.  However, you might be able to consolidate or refinance your private loans into a loan with a lower interest rate.

Potential Ways to Suspend Payments
Also, both federal and private student loan lenders offer deferment or forbearance options that allow you to temporarily suspend payments if you are having financial difficulty that prevents you from repaying the loans. You should read the terms of deferment and forbearance on the documents that you got with the loan very carefully because interest will continue to accrue during this period

Is Discharging Loans in Bankruptcy Possible?
People often ask if student loans can be discharged in bankruptcy. Generally, under the bankruptcy law, student loans cannot be discharged unless you can prove that not having the debt discharged will impose an “undue hardship” on you and your dependents.  That is not so easy to prove.  You must show that, based on your current income and expenses, you will not be able to maintain a “minimal” standard of living if you are forced to repay your student loans; that additional circumstances exist indicating that your situation is likely to persist for a significant portion of the repayment period of the student loans, thus preventing you from making future payments; and that in the past you have made good faith efforts to repay the loans.[1]  The City Bar Justice Center has made a series of videos on student loans and bankruptcy that can be found on our website or on CBJC’s YouTube channel at https://youtu.be/VG9MfQSlXBo and https://youtu.be/xCdzEiW8vLg.  For more information on gathering information on your student loans, discharging the loans in bankruptcy and forgiveness options, take a look.

So, to recap:

1. Keep excellent records.
2. Maintain a list of payments you make.
3. If you are unable to make payments, reach out to your lender as soon as possible.
4. Explore repayment or deferment options to prevent you from going into default.
5. If you are suffering an undue hardship, have an ongoing disability or your school has closed, look into discharging the loans or forgiveness as an alternative.

[1] This three-prong test is the law in NY State.