Private Student Loan Bankruptcy
Rather than face private student loan bankruptcy, students should take time to research the obligations of borrowing and make use of any federal loans which may be available. In the flurry of paperwork involved in applying for colleges and other institutions of higher learning, there is sometimes little information given regarding preparing for the financial aspects of higher education. Students and parents need to take the responsibility for discovering the sources of scholarships, loans and other forms of financial aid. Guidance offices are usually willing to help, yet it may be necessary for the student or parent to initiate the quest for information.
Two sources of loans are available: federal or private loans. Federal loans are provided by the government to students for educational expenses. Find out one's eligibility for these funds by completing the Free Application for Federal Student Aid (FAFSA). Private educational loans are also available. Many students, even if they are eligible for grants, scholarships and federal loans, need additional funding and turn to private sources as well as government funding. Be sure to exhaust the federal solutions first, as these may have additional benefits, such as the right to deferment, forbearance, or cancellation under certain circumstances, and the establishment of affordable repayment plans to pay off the debt. Otherwise, one may find oneself in private student loan bankruptcy.
Deferment of federal student loans can be an important strategy in managing educational expenses and preventing private student loan bankruptcy. This process allows borrowers to postpone repayment without incurring interest costs. Interest will accrue on an unsubsidized loan, but the lender can decide to postpone interest charges until after the deferment period is over. This process is known as capitalization. If the student is able to pay the interest costs, it is best to do so even if this is not immediately required. This will help to keep interest costs lower than if one waits to repay such costs until they are due.
Other benefits of federal student loans are recent programs which have been devised to help students manage educational costs and avoid private student loan bankruptcy. One of these is Income-Based Repayment (IBR). This program will help by providing loan caps based on income and family size. This should work out to payments of less than 10% of income for most borrowers. Those with lower earnings might have smaller payments. The IBR option has certain debt-to-income ratio requirements in order to meet the qualifications for a reduced payment. IBR will also forgive debts remaining after 25 years of qualifying payments. Federal loans made to students, but not to their parents, are the only types of loans eligible for this program.
The US Department of Education also expects to finalize details of a public service loan forgiveness program by November of 2008. Under this program, if the student is a teacher or works in government service or at a nonprofit 501(c)(3) organization, he or she may qualify for loan forgiveness after 10 years of eligible payments and employment. Those employed by federal, state, local or tribal governments are eligible and employers include those who provide various public services (childcare, health services, law and library services, to name a few). Note that qualifying payments need not be in consecutive months, as long as they total 10 years (120 monthly payments). Also, teachers may qualify for a whole year's service by completing annual contracts which are at least eight months long. Both of these programs are still being finalized, so check the Department of Education website for complete details. Borrowers who are trying to avoid private student loan bankruptcy may have to apply for a federal loan in order to be eligible.
Many students find that they also require private loans to make educational training possible. If students find themselves in situations where they are considering private student loan bankruptcy procedures, they should realize that this is seldom the best answer to financial problems. Student loans are generally not excused because of bankruptcy. In the rare case that this may be possible, the borrower must show the court that payment of this debt will impose undue hardship on the individual and his or her dependents. Several conditions must be met. It must be shown that the borrower would not be able to provide even a minimal standard of living, that additional conditions exist which would make it unlikely that the financial situation could be resolved (such as ongoing medical disabilities which preclude returning to work), and that the debtor has attempted to make efforts to repay the loans (possibly by requesting that a repayment schedule which reflects current realities be set up by the lender).
Courts can be somewhat arbitrary about their decisions. Borrowers who claim to have a low-paying job may be instructed to seek a better one in order to be able to make payments. Those with alcoholism or mental health problems are not automatically qualified for private student loan bankruptcy. Some courts are more lenient, and if successful, the loans may be cancelled. However, remember that bankruptcy procedures will have costs of their own, and having a private student loan bankruptcy on one's record can affect his or her ability to borrow funds for other purposes. The best solution to the dilemma is to speak with the lender about setting up a reasonable repayment plan. As Matthew 5:25 advises, Agree with thine adversary quickly, whiles thou art in the way with him; lest at any time the adversary deliver thee to the judge.... At times, lenders are willing to defer payments for a while until a financial situation improves. Consolidation of loans should be carefully considered, especially if one is going from a federal loan program to a private lender. Borrowers may only get one chance to consolidate, and this may negate certain safeguards and privileges which are found in the federal loan system.
Student Loan BankruptcyStudent loan bankruptcy is only possible when a person is able to claim that they or their dependents are going suffering from unavoidable hardships as a result of not having enough to make payments and a living at the same time. A person should only every officially file for bankruptcy as a last option as doing reflects poorly on credit history which can lead to more difficulties in the future. However, occasionally doing so is necessary in order for people to get out of impossible financial situations and get back on their feet again. There are ways of obtaining assistance no matter what the problems might be, as the Scripture says, "But mine eyes are unto thee, O GOD the Lord: in thee is my trust; leave not my soul destitute" (Psalm 141:8). People do not have to be left destitute and hopeless for there is always hope.
The financial world can be a tricky one if people are not adequately prepared to successfully traverse the ebbs and flows of a dynamic economy. Good financial planning does not come easily and is something which requires a learning process. Healthy spending habits and wise decisions are good places to begin and can often prove to be adequate ways of building a firm foundation on which to build for the future and avoid possible outcomes such as student loan bankruptcy. Problems can arise when unexpected costs add up and can hurt a person's financial standing. As is also the case, some people who face unplanned costs, such as illness, hospital fees, automobile problems and so on, do so in addition to losing an important job which perhaps was the person's only source of income. Such a situation can be a problem, especially with recent college graduates. Graduates do not always have the skills to cope with losing an important job and keeping up with possible bill either due to a lack of experience, poor planning, or a combination of the two. Regardless of the reason, student loan bankruptcy is a way out for some, and is a tactic that can put people back on the right track.
The only way a person can officially file for student loan bankruptcy if there is an actual physical reason for why they cannot work, and proof that future unemployment is impossible due to one's physical condition. Before a person would take such a drastic move the steps towards finding any possible alternative solution should be done first. If someone has been physically injured, ill or for some reason loses or is unable to keep a steady job, perhaps there could still be the option to seek out another alternative through which an adequate living could be made. Those with families to support might find the task difficult, or in some cases impossible and the family might suffer as a result, by way of the lack of sufficient funds with which to buy food and pay the necessary bills. Also, if someone has dependents, which means people who rely on them for a living, does not have to be family members, and the task of securing steady funds is proves impossible, then they qualify as bankrupt and can file accordingly.
Those who see filling for student loan bankruptcy as the only alternative should be cautioned that doing so might not totally do away with all loan payment problems. Instead, one may only be able to consolidate the debt along with any other outstanding bills. Such is the case for people who do have a chance for future employment which could bring along a steady income, at which time the debtor would be allotted three to five years to pay the debt off. Certain rules apply to those might be able to secure an income in the future, and different laws occur with applicable codes. There are ways of determining if the status of bankrupt is applicable to certain cases. People, who are unsure as to the best course of action, should either talk to a financial expert about the predicament or in the very least look into possible alternatives. The Internet can be a good source to find tips and advice on all that goes into filing for student loan bankruptcy, and possible alternatives and even tips concerning ways in which to stay out debt and in good financial standing. Claiming a bankrupt status can help in extreme cases for a person to get out from under debt when the outcome seems bleak, but should be a lat resort and avoided if possible.
People who wish to get out from under debt must have sufficient evidence that they or their dependents indeed suffer from 'undue hardships' to qualify for student loan bankruptcy. In the past, a common procedure for graduates to do was to file for bankruptcy shortly after graduation in the hopes of doing away with the debt before payments would have to be made. Since that time a law was passed that strictly changed the requirements for the official qualifications which constitute being bankrupt, mainly, the requirement of 'undue hardships'. The only way such an act is possible is if a court of law deems that there is just cause and decides that payment would cause the debtor, and dependents, if applicable, to suffer. Only when a court of law agrees with and come to such a ruling in which a person qualifies, will they be able to file for student loan bankruptcy and after the fact a person should do what they can to obtain some form of income or stability for the future.