Are Student Loan Payments beyond Your Means?

Attending college is expensive and even those who receive scholarships and/or work while attending classes might find they need additional money for tuition, books, and living expenses. The good news is college loans are available, often at a reasonable rate, making it possible to earn a degree. Unfortunately, many find their student loans become an unbearable financial burden after they graduate, especially if things do not go exactly as planned.

And what surprises many is the fact that people struggling to pay their student loans are not all new graduates, in their mid- to early-twenties. There are people well into middle age, some even approaching retirement that still carry the burden of student loan debt. What can you do if student loan is creating a financial struggle and you are unable to make your student loan payments?

Is Bankruptcy an Option?

For many, student loans are exempt and will not be discharged in bankruptcy. You might benefit from bankruptcy because it will free up money to make student loan payments, but your loan will not disappear by filing, unless you are able to show that the debt created by student loans places an unreasonable burden on you and you will never be able to make payments. This is sometimes the case for people who must file for bankruptcy because of disability. If you believe your student loan might be eligible for discharge, you must work with an experienced bankruptcy attorney to ensure the process is handled properly.

Federal Aid Programs

If bankruptcy is not an option or will not help, some people qualify for the College Cost Reduction and Access Act, a bill that became effective in 2009 that contains provisions to improve a person’s ability to pay off student loan debt. It is based on financial ability and reduces the amount owed by people with high debt-to-income ratios to something manageable (in some cases $0). It also offers loan forgiveness after 25 years.

Keep in mind, when the balance of your loan is forgiven, the IRS views that as income and you will be taxed. Before exercising your rights under the program, calculate the tax payment that will be due to ensure it will be affordable.

You might also be eligible for the Income-Contingent Repayment Plan, which is an alternative for those who do not qualify for the Income-Based Repayment Plan. It is only available to those with Federal Direct Loans and Grad PLUS Loans, and enables borrowers to reduce their loan payments to 20% of your monthly discretionary income or to the amount the borrower would have repaid under a standard 12-year repayment plan multiplied by an income percentage factor determined on the basis of income and marital status. This program also offers loan forgiveness after 25 years.

A third option, the Public Service Loan Forgiveness plan, allows you to reduce or eliminate your student loan debt if you are working in a government or non-profit career. If you earn less than 150% of the federal poverty level, your loan payments will be $0 for Federal Direct Loans. For many, the time for choosing a career that enables loan forgiveness would need to have been made around the time the money was borrowed, so it might be too late to qualify for these programs now.

To learn more about any of these programs, visit the US Department of Education’s Federal Student Aid page.

The important thing to understand if you are facing unsurmountable student loan debt is that you have options. Not all options are right for everyone and in some cases, drastic measures might be necessary. However, if it means getting a fresh financial start, drastic might be the best option.

For more information or to discuss financial issues related to your student loan debt, contact the Law Offices of Robert M. Geller at 813.254.5696 to discuss your situation.


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