Student loan debt has become one of the fastest growing sources of debt for young Americans under the age of 30. Topping $1 trillion of the nation’s personal debt, student loan debt has also forced numerous graduates into bankruptcy. Despite efforts from the government to resolve the student loan debt crisis the fact remains that it has been, and will continue to be, a very difficult debt to manage.
Student loan debts are among the most difficult type of debt to resolve through a traditional bankruptcy. The reason is that the loans are often federally funded, and maintain a high level of repayment liability. Similar to tax debts, student loan debt is not easily discharged in bankruptcy unless the debtor can prove (1) that they are experiencing an extreme financial hardship and (2) that hardship is expected to last for a significant amount of time. Simply being underemployed or overburdened by other debts is unlikely to qualify a debtor for a bankruptcy discharge of their student loan debts. However, a debtor may qualify to receive a bankruptcy discharge of other debts, freeing up some income to be put towards repaying their loans.
The best option for relieving student loan debts is to contact the lender directly to arrange a repayment plan or request a deferment. It is easier to negotiate directly with the lender and request assistance. Lenders may be willing to approve a deferment of payments for up to one year for employment issues, medical illness or business startups. Borrowers may also be able to obtain a debt modification, in which they can have their overall owed debt reduced. However, it is the borrower’s responsibility to prove (1) they are experiencing a financial hardship and (2) that they have attempted, in good faith, to make payments.