Income Based Repayment Can Ease Student Loan Payments

New Student Loan Legislation Doesn’t Help Existing Borrowers

The Health Care and Education Reconciliation Act 2010 (aptly known by some as “the new health care law”) has made tremendous waves throughout the news media, twitter, facebook and for talking heads on TV.  However, some folks may overlook the “Making College More Affordable” program contained within the new legislation.

Many of our clients are burdened with student loan debt, so I was curious if the new law provided relief for existing borrowers.

The good news is that new borrowers will have an easier time repaying their loans:

“New borrowers who assume loans after July 1, 2014, will be able to cap their student loan repayments at 10 percent of their discretionary income and, if they keep up with their payments over time, will have the balance forgiven after 20 years. Public service workers – such as teachers, nurses, and those in military service – will see any remaining debt forgiven after just 10 years. More than 1.2 million new borrowers are projected to qualify and take part in the expanded IBR program.”

The bad news is that there isn’t additional relief for existing borrowers.

Existing Borrowers Should Explore Income Based Relief

Income Based Relief may allow qualified borrowers with federal student loans (except PLUS) to drastically reduce their monthly student loan payments. In some cases, a borrower pays what they can for 10 or 25 years and the balance is then eliminated provided they made qualifying payments for the applicable term.  IBR has been around since 2009, and the website I encourage you to visit is:    ibrinfo.org.

Unfortunately, private student loans are not covered using IBR. If you are unsure if your student loans are federal, call your student loan lender and ask.

Once you’re certain your loans are federal (except PLUS loans) your next step should be to contact your lender and get the paperwork started.

Student Loans and Bankruptcy

Eliminating or modifying student loans through bankruptcy is difficult, if not impossible for some clients. However, you should consider all your options. A chapter 13 bankruptcy provides even more flexibility in handling student loan debt, even though you can’t discharge it. Filing a chapter 7 or chapter 13 bankruptcy operates as an automatic stay, and prevents collection efforts against you for the duration of your case.

The first step when considering any student loan for discharge is to see what type of student loan you have. A student loan cannot be discharged if it was “made, insured or guaranteed by any governmental unit, or made under any program funded in whole or in part by a government or a nonprofit institution.” If your loan cannot be discharged, the next analysis is to determine if you are eligible for an “undue hardship” exception. A successful motion may eliminate or reduce your student loan if the right factors are present in your case.

Our office handles student loans through bankruptcy and we would be happy to analyze your situation during a free initial consultation.