Cost of tuition has risen constantly in the last 20 years and so has the need for student loans. Nowadays, most student loans are backed by the federal government, even though the administration of these loans is usually conducted through a private lender. As a result, default on these loans, which has increased consistent with the rise in tuition, is pursued ardently as only the federal government can. Increasingly tight measures have been put in place to secure the past due amount or at least handle the arrearages. The majority of student loans are not dischargeable under Chapter 13 or Chapter 7 bankruptcy, so if the majority of your debt is education loans, bankruptcy may not be the best and most complete relief for your predicament. However, there are other methods of dealing with student loans that are either in or nearing default. Here are some guidelines from bankruptcy attorneys from Massachusetts in dealing with this student loan debt.
First of all, don’t simply give up and default on your loan. Collection fees may accrue and increase the balance to make things worse. Your income tax refunds can be tapped for years and applied to your balance. Your wages can be garnished – not a great help, though, if the balance is steadily rising. Deferment is a viable option for your predicament, provided you are not in default on the loan, are in the grace period after graduation or have been granted previous deferments that keep you from being in default.
A deferment is, in simple terms, a delay on payment based on certain conditions. You may often defer both principle and interest, which means the interest on your account will not be accruing and your balance will not increase. In other cases, you may only defer the principle, meaning that the interest continues to accrue and your balance will increase during this time. Determination of which condition can apply to you depends on the type of loan you have and when you got it.
In order to qualify for deferment, you must meet particular conditions:
Total, temporary disability – If you obtained your loan before July 1, 1993 and you, your spouse or other dependent is temporarily totally disabled, you may defer payments for up to 3 years on most loans. If you are the one disabled, you must be unable to work or attend school for at least 60 days. If your spouse or dependant is disabled, their disability must make you unable to work or attend school because they need your care for at least 3 months.
Enrollment in rehabilitation for disability – You can defer payments on loans for six months after your training ends if you are enrolled in one of these programs.
Economic hardship – If you are suffering economic hardship for whatever reason, you can defer payments on loans obtained after June 30, 1993 for up to 3 years. Perkins loans can be from any time period. (A Perkins loan is a low interest (5%) loan for undergraduate and graduate students with “exceptional” financial need insured by the Federal government). If you receive welfare or SSI (Supplement Security Income from the Social Security Administration), or other public assistance, you are automatically entitled to a deferment. For those not receiving public assistance, your eligibility is calculated using the federal poverty level, the federal minimum wage, your loan payment amount and your income, for which you will have to provide documentation.
Re-enrollment in school – If you return to school at least half time, you are eligible for a deferment.
Unemployment – If you are unemployed and actively seeking work, you are eligible for a deferment. You will have to provide proof of your eligibility for unemployment benefits or evidence you are trying to find a full time job (at least 30 hours per week) that will last at least 3 months.
Uniformed Service – Those currently serving in a uniform wearing branch of the government are eligible for a deferment under several situations. Contact your supervisor or commanding officer for more information.
Teaching in Needy Populations – Former students who now serve as teachers in needy areas, such as low income or disabled students, are eligible for deferment.
Community Service – performing community services, such as serving in the Peace Corps or teaching under and in certain conditions may entitle you to defer or even partially cancel your student loans.
Working in the heath care field – Nurses, doctors working on their residencies and other health care professions can oftentimes defer or cancel their loan payments.
Massachusetts bankruptcy attorneys are familiar with these situations and can counsel you on your next step. They can guide you through the needed paperwork, fill out the required forms. Although it sounds like a lot of work, deferments can buy you the time you need to remedy your situation without the difficulty of attempting to discharge these debts under a bankruptcy.