Avoid Defaulting on Government Student Loans
The amount of student loan debt in theUnited Statesis close to $1 trillion. Student debt has passed up credit-card debt to become the second-largest category of consumer debt in the country. Only mortgage debt is higher.
Due to the poor job market of the past few years, nearly one in every six borrowers with a student loan balance is currently in default. About 5.9 million individuals have fallen at least 12 months behind on their payments of government-backed student loans.
Collection Agencies Keeping Busy
Where borrowers see burdens, the debt-collection industry sees opportunity. Because of the access to government records, these collectors are very good at tracking you down. The government has been able to recover about 80 cents for every student loan dollar that goes into default.
Together, the government and its collection agencies will use methods like garnishing wages or social security checks, or seizing tax refund checks. The decision to default can ruin your credit rating and (with penalties up to 25 percent of the balance) increase the amount you owe.
One of the best resources for individuals unable to pay off student loans is the Department of Education’s income-based repayment program. Under this program, borrowers pay 15 percent of their discretionary income for up to 25 years, after which the rest of the loan is forgiven.
President Obama recently signed into law an improved income-based repayment plan that would lower this cap to 10 percent of discretionary income for students who take out loans after July 1, 2014. In October 2011, he announced an executive action to make that lower cap available to more borrowers by the end of 2012, rather than 2014.
For more information about income-based repayment plans, contact your loan servicer.
Forbearance and Deferment
Additional programs to help borrowers keep up with payments and avoid debt collection agencies include forbearance programs for temporary financial woes and deferment for issues like unemployment, military service and economic hardship. Death and disability lead to forgiveness of a small number of student loans.
Bankruptcy and Student Loans
As a rule, student loans are not forgiven in bankruptcy, although payments can be worked into a Chapter 13 personal bankruptcy repayment plans. For student loan debts to be discharged in bankruptcy, you must demonstrate undue hardship, and courts are very reluctant to find that debtors have met this standard.
A Consumer Lawyer Can Help
The law surrounding student loan debt can be complicated. Plus, the facts of each case are unique. This article provides a brief, general introduction to the topic. For more detailed, specific information, please contact a consumer lawyer.