Everybody wants to send their kids through college, but the economic collapse of 2007 has left most families unable to pay for it out of savings or home equity. Student loan debt in the US has quintupled since 1999 with growth exploding since 2005. In a difficult employment environment, individuals may also seek trade or occupational certification from a school in response to advertisements promising employment, and take out student loans in order to do so.
Common perception has been that student loan debt is inescapable because it’s Government-backed. By law, student loan lenders have avenues of recourse not available in other types of debt, including the seizure of Federal tax refunds, Social Security benefits, Social Security Disability benefits and wage garnishment for as long as the debtor is alive. The 20-year statute of limitations on other debt doesn’t apply to Federally-backed Student Loans.
There are avenues of recourse for the borrower in financial difficulty, however. Student loans can be extended, restructured, forgiven, cancelled, or discharged in certain limited circumstances. As with any other kind of debt, taking action sooner is better, offering more options. A qualified attorney can help in the process, which involves dealing with the US Department of Education Ombudsman and/or your lender. A qualified attorney familiar with the options and your circumstances can guide you toward a resolution you can afford, even if you’ve gone into default on the debt.
Deferment is a postponement of payment obligation that can be granted if the borrower is enrolled in school, unemployed, in the military or Peace Corps, or suffering economic hardship, and is not more than 270 days behind in loan payments. Interest will not accrue during a deferment.
Forbearance is another form of postponement that can occur in the event of financial difficulty, health problems, personal problems, or if the payments are more than 20 percent of monthly income. Interest does accrue in forbearance.
Cancellation can occur if the school attended closes during the course of study, if you become employed as a teacher or some other public service jobs, or if your school misrepresented your likelihood of employment and you don’t have a diploma or GED.
Discharge can occur in a bankruptcy filing, although, usually, courts will not discharge student loan debt unless certain specific conditions are met. Ask your attorney about the Brunner test. If you’ve shown good faith in attempting to repay, your poverty is likely to persist, and you just can’t afford it, you might meet the test for discharge. If the loan is from an occupational or trade school and fraudulent claims were made by the school or lender, discharge will be considered.
