Bankruptcy and Student Loans: What to Know After the Latest Round of Debt Cancellation
The federal government announced an additional $9 billion in student loan debt relief on October 4, 2023. With this latest round of debt forgiveness, millions of student loan borrowers are now eligible to have their loans either eliminated or substantially reduced.
But what if you’re not one of them?
While millions of student loan borrowers are now eligible for relief, there are still millions who aren’t. Although the government is reportedly working on providing student loan debt relief to additional borrowers, experts warn that those who haven’t yet received relief “should temper their expectations.” The Biden Administration’s proposed “Plan B” relief “is likely to be narrower in its reach,” and at least one expert advises that “[a] much smaller number of borrowers will be eligible.”
What Are Your Options if You Can’t Afford Your Student Loan Payments?
With this in mind, what should you do if you aren’t eligible for relief and you can’t afford your student loan payments? In this scenario, you may have a variety of options available. However, one option that shouldn’t be on the table is simply ignoring your payment obligations. Even if you eventually become eligible for student loan debt relief, falling behind on your payments can lead to several issues. These issues aren’t worth it, and you owe it to yourself to make informed decisions about how best to handle your financial situation.
So, what should you do? Here are some options to consider:
1. Confirm Whether You Are Eligible (or Can Become Eligible) for Student Loan Debt Relief
As Forbes.com recently reported, not everyone who is eligible for student loan debt relief received an email from the government. If you didn’t receive an email, this doesn’t necessarily mean that you aren’t eligible. The article lists several reasons why borrowers might not have received an email, including:
- You may need to consolidate your loans in order to qualify for student loan forgiveness;
- You may need to continue making payments for a period of time in order to reach the forgiveness threshold and/or,
- Incomplete or incorrect data could have resulted in an incorrect determination of your eligibility.
If you believe that you are eligible but did not receive a forgiveness notification, you should look into your forgiveness status through StudentAid.gov. If you need to take additional steps in order to become eligible, you should work toward taking these steps as soon as possible.
2. Seek an Income-Based Repayment (IBR) or Pay-As-You-Earn Payment Plan
Depending on the type (or types) of student loans you have and your current financial status, you may qualify for an income-based repayment (IBR) or pay-as-you-earn payment plan. These plans can reduce your monthly student loan bill significantly, and they can allow you to eventually qualify for student loan forgiveness. These plans are available to qualifying borrowers who have federal student loans.
3. Refinance Your Private Student Loans
If you have private student loans, your loans aren’t eligible for IBR or pay-as-you-earn, but you may still be able to reduce your monthly payment by refinancing. Several lenders offer student loan refinancing, and you will want to shop around to make sure you are getting the best interest rate you can find.
Refinancing usually comes with up-front costs (which are added to your loan balance), and it can increase the length of time that you have to make monthly payments. As a result, it isn’t right for everyone. But, if it’s right for you, this could be one of the best options you have available.
4. Consolidate Your Student Loans
If you have multiple student loans, consolidating your loans may also allow you to reduce your total monthly payment. Consolidation is an option with both federal student loans and private student loans. For borrowers who are behind on their payments, consolidating may offer the ability to roll their outstanding interest into their consolidated loan balance as well.
5. Seek a Deferment or Forbearance
As the U.S. Department of Education explains, “[a] deferment or forbearance allows you to temporarily stop making your federal student loan payments or temporarily reduce your monthly payment amount.” While interest will continue to accrue while your student loans are deferred or in forbearance, if you need time to get back on solid financial footing, this could provide the temporary financial relief you need.
6. Adjust Your Monthly Budget
For many student loan borrowers who aren’t eligible for forgiveness, managing their monthly payments is a matter of adjusting their monthly budget. While you need to pay your student loans, chances are you have other monthly expenses that are unnecessary. From multiple streaming services to expensive car loans and from a morning coffee shop habit to drinks after work, spending cuts here and there can add up to make a big difference.
7. Consider Filing for Bankruptcy
Finally, if you owe more than you can afford to pay, it may be worth considering a personal bankruptcy. While student loans generally aren’t eligible for discharge in bankruptcy, there are exceptions. Additionally, even if you can’t eliminate your student loan debt through the bankruptcy process, you may be able to eliminate other debts—and this may allow you to comfortably make your student loan payments on a monthly basis.
Filing for a personal bankruptcy can afford other benefits as well. For example, if you are dealing with bill collectors, filing for bankruptcy will put a stop to the calls immediately. An experienced personal bankruptcy attorney can explain all of the benefits, go over all of your options, and help you make an informed decision about how best to move forward.
Discuss Your Options with Personal Bankruptcy Attorney Georgette Miller
Do you have questions about how to manage your student loan debt? If so, we can help, and we encourage you to get in touch. To schedule a free and confidential consultation with personal bankruptcy attorney Georgette Miller, give us a call at 866-964-6529 or tell us how we can reach you online today.