Paying off student loans (in and out of bankruptcy)

Most Americans need help paying off student loans. If you’ve looked for options, you’ve likely been disappointed with the options you find to pay off your student loans. If you’ve listened only to what your servicer tells you, there are no other options than paying off student loans off ‘in full’ ‘forever’ ‘or else…’

While it’s still true that student loans are non dischargeable in bankruptcy unless you can show undue hardship, the Feds do have an option for those paying back subsidized loans. Income-driven loan repayment is the one legitimate option for paying back student loans–why don’t more borrowers know about this amazing program?

Income-driven student loan repayment should be your next click if you are paying off student loans.

Please educate yourself about your options. The first step is determining which of your loans are federally subsidized and which are private (unsubsidized loans).  The distinction is whether the federal government is paying 1/2 the interest, or if you are paying all of it. Assuming you have loans that are federally subsidized, those will be ones that you can put into an income-driven loan repayment.

There are currently three options for income-driven loan repayment–Pay as You Earn, Income Based Repayment and Income Contingent Repayment.   Please let the federal website tell you which you qualify for–and if you are reading this during 2015, check back again later in the year.  The Obama administration appears to be making pay as you earn open to more borrowers (e.g. not tying eligibility to when the loans were incurred).

These programs work whether or not you are in bankruptcy.  If you are considering filing Chapter 7 or Chapter 13, you’ll continue whatever income-based repayment you qualify for.  Filing bankruptcy won’t interfere with your eligibility for income-driven plans, and the plans are designed to not interfere with the administration of a Chapter 13 plan.

Some of my observations about these programs in the five years since they were created by President Obama: The program is only rarely covered by the media.  Servicers don’t tell borrowers that these plans are available when they call to collect.  The programs are not really publicized on servicer websites–you’ve got to search for them ‘if you are having difficulty paying…’. College and Universities don’t push students to look for it (or to manage their debts).  The programs remain the great unused option, which is really a shame since it would help so many borrowers.