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After Bankruptcy: Student Loan Debt

Navigate Your Student Loans with Our Bankruptcy Firm

STUDENT LOANS AS A GENERAL RULE ARE NOT DISCHARGEABLE IN BANKRUPTCY. After completion of your bankruptcy you are in a perfect position to start addressing your student loans if you have not done so already. If your situation is similar to many of our clients, you may have several student loans outstanding with various servicers. Please see the following steps to get a handle on your federal student loans after you have completed your bankruptcy.

  1. Go to the National Student Loan Data System website and register. www.NSLDS.ED.GOV. This website will give you an overall view of your federal student loans and who is servicing each.
  2. You will most likely have to give the website a couple of days to verify your identity through the Social Security website.
  3. Once you are able to login you will be able to see all of your student loan accounts and a PH# to find out who is servicing them.
  4. Contact each agency that has one or more of your loans by telephone.
  5. At this point, you should know if your loans are in default or not. Generally speaking, if your loans were not in default when you filed your case, they will not be in default when you receive your discharge. Conversely, loans that are in default on filing of the case are generally still in default after discharge. If your loans are NOT in default, skip to Step 19 below.
  6. Tell the person you speak to that you want to rehabilitate each loan utilizing the Federal Rehabilitation Program.
  7. You will set up payment arrangements for each servicer and once you have made on time payments for 9 straight months your loans will come out of default.
  8. If your tax refunds are scheduled to be seized that seizure will be released once you have made 4 continuous on time payments.
  9. If you are scheduled to have your wages garnished all pending garnishment orders will be released after 5 continuous on-time payments. This will protect your paycheck from the time you originally set up the payment arrangement as long as you stay current on the payments.
  10. If you want to go back to school, you will be eligible to apply for additional student loans after 6 continuous on-time payments.
  11. After you have made 9 continuous on-time payments your loan will be transferred to one of the initial student loan servicers (Sallie Mae, Mohela, Nelnet, Great Lakes, etc…)
  12. You will then contact the new servicer and set up a payment plan over 10, 20 or 30 years or an income-based repayment plan. At this time, you may also apply for forgiveness or other hardship programs. (Keep in mind that these forgiveness programs are extremely difficult to qualify for. You essentially have to be physically and mentally disabled). However, if the payment amount that is initially offered is not affordable for you, state that you need a lower payment and be sure to use the words “reasonable and affordable”.
  13. After 9 full months, you will also get a reduction in the balance owed on your student loans because the collection costs are reduced from 25% down to 16%.
  14. After 9 full months of on-time consecutive payments, negative marks related to your student loans will be removed from your credit report.
  15. Keep in mind that if you do not complete and return all of the paperwork related to your rehabilitation your loans cannot be rehabilitated.
  16. The lowest payment that you can qualify for while rehabilitating your loans is $5/month for each loan. This is income based so discuss it with each servicer. Be sure to put the payments on some type of online payment or auto debit to ensure that the payments get made on time and you have good records.
  17. YOU CAN ONLY QUALIFY FOR THE FEDERAL REHABILITATION PROGRAM ONE TIME. So, once you get going you have to stay on top of it or you lose all of the benefits above.
  18. After rehabilitating your student loan, you may also qualify for non-profit forgiveness and/or the 20 or 25 year IBR programs. (More information in step 22)
  19. Your loans are now either rehabilitated or did not need to be rehabilitated because they were never in default. You may now explore different income-based payment options. Regardless of the type of loan (except Private loans which don’t have to play by the same rules, and Parent PLUS loans) everyone with government direct or consolidation loans is eligible to participate in some form of income-based repayment plan.
  20. You should ask yourself, based on the balance of your loans and your income, are you able to potentially pay off your loans (go to Step 21), or do you know that you will never be able to fully satisfy them? (go to Step 22)
  21. The standard repayment is ten years. You may elect to extend that repayment period up to 20 years in the case of consolidation loans. For people who contemplate being able to pay off their loans eventually, there are two income-driven programs that can offer you some relief:
    1. Income-sensitive repayment: This repayment option sets a payment schedule based on your present income, but you must pay, at a minimum, the accruing interest on your loans. This repayment amount will increase over time until the loans are paid off over not more than 25 years.
    2. Income-based repayment (IBR): This option will cap your loan payment at 15% of the extent to which your family income (including spouses and dependent children included in your household size) exceeds 150% of the federal poverty level (FPL) for your household size. The remaining balance (if any) is forgiven after 25 years of payments. The FPL changes over time and can be easily found online. The upside to this plan is the payment cap based on income. The downsides are that there may be more generous income-based options available and that use of this method is unlikely to ever pay your loans in full. Additionally, as of yet, the amount forgiven may constitute taxable income.
  22. If you know that it is unlikely or impossible that you will pay off your loans completely, there are several options available which will result in forgiveness of your loan balances after a period of time:
    1. Public Service Loan Forgiveness (PSLF): This program caps payments at 10% of the extent to which your family income exceeds 150% of FPL (See Step 21b for more about how FPL and household size are calculated). Eligibility for this program requires 120 on time monthly payments under any available income-based repayment option, and requires you to be employed full-time by certain government or not for profit employers. The 120 payments need not be contiguous, so if you leave public service employment but then later become employed again for another such employer, you can pick up where you left off with PSLF. Even if the income-based repayment plan you choose results in a payment amount of $0.00, you earn credit toward the 120 months of payments. There are important limitations and reporting requirements for PSLF, which are available at www.studentloans.gov. Unlike IBR, forgiven balances under PSLF do not constitute taxable income.
    2. Income-based repayment (IBR): Described above in Step 21b, this option will forgive any remaining balance due on your loans after 25 years of payments (even if that payment is $0.00). This option is available to all Federal student loan types, but not all borrowers (Parent PLUS borrowers cannot use IBR in most cases).
    3. Pay as you earn (PAYE): Payments are capped at 10% of the extent to which your income for household size exceeds 150% of FPL (See Step 21b for explanation). The balance of your loans is forgiven after 20 years of payments (even if that payment is $0.00). There are important limitations regarding the types of loans and borrowers eligible for PAYE. Information about these limitations can be found at www.studentloans.gov.
    4. Revised pay as you earn (REPAYE): Similar in form to PAYE but applies to more loan types. Forgiveness occurs after 25 years if the loans involved graduate or professional study.
    5. Income Contingent Repayment (ICR): described in Step 21a, but payment caps at 20% of the extent to which your income exceeds 150% of FPL (described above) with forgiveness after 25 years of payments. Unless you intend to pay off your loans completely, this option will almost always result in higher monthly payments than other options listed here.

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