Student loans can be very difficult to deal with. It’s a national problem, but my clients in Southeast Iowa seem to have lots of student loan issues.
There is a lot of momentum in Congress relating to student loans and the ability to discharge them in a bankruptcy case.
As of June 2019, there is a bill pending with modest bipartisan support towards this end.
We in the industry of helping debtors are hopeful that some law will be passed making at least some student loans dischargeable in bankruptcy.
Presently, however, it is very difficult under the current laws to discharge student loan debts in bankruptcy.
For cases filed after October 7, 1998, Student Loans are dischargeable only if you can prove that having to repay it would impose an “undue hardship“ you. Proving undue hardship requires going through a separate trial, in addition to the underlying bankruptcy case filing. This obviously adds an undesirable layer of costs with no certain outcome.
Discharging Student Loans in Bankruptcy:
To obtain a discharge based on undue hardship in the Eighth Circuit (which includes Iowa) you must prove all of the following:
- That you cannot maintain, based on current income and expenses, a ‘minimal’ standard of living for yourself and your dependents if forced to repay the loans; (This is usually the easiest prong to satisfy.)
- That additional circumstances exist indicating that this state of financial affairs is likely to persist for a significant portion of the repayment period of the student loans; and,
- That you made good faith effort to repay the loans. This does not just include making payments on the loans. It requires doing things over time such as making efforts to increase your income (which includes going back to school to get additional degrees or experience), consolidating loans with the Direct Loan Servicing Center, entering into an “Income Based Repayment” plan, and other similar efforts.
Student Loan Repayment Options
Student Loans (also known as educational loans) are tricky because they come in different forms (federal or private) and have different rights and remedies to collect.
Government (Federal) student loan lenders can garnish wages and seize bank accounts without going through normal court procedures, but most of these loans can be dealt with through income-based repayment programs and other means which can make repayment terms much easier.
Private student loans on the other hand must go through a more conventional lawsuit process before they can collect, but there are no formal mandated repayment options available.
How I Can Help With Your Student Loan Problems
My office provides assistance in the student loan repayment process in several different ways. Some of the student loan resolution options are:
- Obtain a student loan repayment plan based on your ability to pay, and regardless of how much that is, your loan can be wiped out in a maximum of 20-25 years.
- Stop or at least delay actions being taken by student loan agencies trying to collect.
- Negotiate settlements with the student loan agency
- Chapter 13 bankruptcy repayment (allows you to control the monthly payment and stop collections)
Different options are available depending on whether the student loan is federal or private, and whether the loan is in default or not. Which repayment option is best for you depends on the specifics facts.
Important Student Loan Resources:
For other non-bankruptcy resources to deal with Student Loans, including income contingent repayment plans, and methods of canceling the debt, see the Student Loan Borrower’s Assistance page.