Student Loan Debt

Student loans are a growing and serious problem. Currently, it is very difficult to discharge student loans in bankruptcy but that does not mean that bankruptcy cannot help. Filing Chapter 7 for non-student loan debts may help free up resources that will allow you to make a more affordable payment plan with the student loan services.

Chapter 13 will allow you to make a payment plan for all of your debts, including student loans for a period of up to 5 years. The Chapter 13 trustee makes an equal payment to the student loans and to all the other unsecured creditors. While this may not amortize the student loan as quickly as a regular scheduled payment, it forces the student loan companies to accept a payment you can afford.

Finally, if you are able to pay your entire balance of student loans over the Chapter 13 plan period, you eliminate a substantial amount of interest you would otherwise be required to pay.

The attorneys at Heller & Thyen also can provide you with contacts for federally backed student loan programs that may allow you to get your student loan payments to an affordable payment.


A Prime on the Different Types of Student Loans

Sources of Federal Student Loans:

Until July 2010, there were two sources of federal student loans – Direct Loans and Federal Family Education Loan Program (FFEL).

  1. Direct Loans: Direct Loans are originated directly through the Department of Education via the William D. Ford Direct Loan Program. Direct Loans are the only source for federal student loans taken out after July 2010.
  2. Federal Family Education Loan Program (FFEL): The underlying loan is guaranteed by the Department of Education, however the loans are offered through private institutions/guarantors.

Types of Federal Student Loans:

There are many different types of federal student loans, however the most popular loans are Stafford (subsidized/unsubsidized), PLUS (graduate and parent), and Perkins.

  1. Stafford Loans: Stafford Loans are available to both undergraduate and graduate students. Subsidized Stafford Loans are awarded on the basis of financial need, and the borrower is not responsible for the payment of interest while they are enrolled in school. Unsubsidized Stafford Loans are not awarded on the basis of financial need, and the borrower is charged interest from the time the loan is disbursed until it is paid in full. Generally, the interest may be paid or deferred while enrolled in school.
  2. PLUS: PLUS Loans are available to undergraduate students and their parents, as well graduate student borrowers. PLUS Loans are loosely based on creditworthiness. A Parent PLUS loan is actually the parent’s loan, for the benefit of their child.
  3. Perkins: Perkins Loans are available to both undergraduate and graduate students with exceptional financial need. Perkins Loans are originated and serviced by participating schools. That means that the payment for this loan is actually made directly to your school. The Department of Education provides initial contributions to eligible schools.

Private Student Loans

Private student loans are obtained through private lending institutions. They are issued based upon the applicant’s creditworthiness. Lenders routinely require a student borrower to obtain a co-signor in order to issue the loan. Private student loans became non-discharge-able in with the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005. This means that, generally speaking, private student loans are no longer discharge-able through a bankruptcy.

Resources

A great website that provides more information on income-based repayment plan is www.ibrinfo.org. A website that allows you to view the status of all of your federal student loans is www.nslds.ed.gov.

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