Article: Testimony of Congressman Danny K. Davis on 09/23/09 during hearings on discharging educational debt in bankruptcy
Article written by Kathryn Tokarska
April 2010 Update
Important information regarding new student loan repayment options on federal student loans:
Income-Based Repayment (IBR) is a new way to make your federal student loan payments more manageable. And if you're a teacher or work in government or at a nonprofit (501(c)(3)) organization, you might qualify for a new type of public service loan forgiveness after 10 years of eligible payments and employment... (more info click here)
 THE TRUTH ABOUT STUDENT LOANS
Tuition has been rising at incredible rates over the past ten years. The
coupling of the rising unemployment rates, increased student loan repayment obligations, and the availability of credit
while still in school, has put a tremendous squeeze on many graduates. Often the student loan repayment may be equivalent
to a typical mortgage on a starter home, leaving little to no room for actual living expenses.
A recent Bill proposed an amendment that would allow for private loans (not federal
loans) to be dischargeable in a Bankruptcy. The bill failed. Legislative comments reflect concerns over the impact
such a change would have on lenders, limiting the availability and increasing the costs of private loans to current and new
students. So what are the options for the recent graduate?
Current Bankruptcy rules provide that student loans are not dischargeable, unless
a "severe hardship" exists to warrant a discharge. The standards used to define what is considered a severe hardship
puts this exception out of reach for most individuals. Generally, the debtor must have incurred a disability that will
significant limit that persons' existing and future income potential. If a disability existed at the time the loans
were acquired, the law requires a significant change in the state of that disability. If you are in this situation,
then a motion for a hearing before the judge should be filed to decide if you qualify for this exception.
Outside of Bankrutpcy you may be able to lower or temporarily stop payments under
several options:
- Deferment
- Forbearance
- Loan Cancellation
- Graduated, Extended or Income-Based
Repayment Plans
It is best to be proactive and contact your lender before you are late with your
payments. Explain your situation and ask for assistance. The lender will explain your options and may be
able to offer some relief.
Student Aid and Fiscal Responsibility Act
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