If I have a student loan in litigation and I am trying to do a payment plan but they are asking more thanI can afford, what are my options?

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If I have a student loan in litigation and I am trying to do a payment plan but they are asking more thanI can afford, what are my options?

Bankruptcy?

Asked on August 31, 2011 California

Answers:

M.D., Member, California and New York Bar / FreeAdvice Contributing Attorney

Answered 12 years ago | Contributor

There are 2 situations that you may be able to be released from your student loan obligation:  bankruptcy or cancellation of the loan. 

Bankruptcy:  The general rule is that student loans are not dischargeable in bankruptcy unless you can prove that repaying the loan would be a severe hardship for you (a very difficult standard to meet).  A courts will consider several factors in making its determination:

  1. Your income and expenses;
  2. How long your financial problems are likely to continue; and
  3. How hard you've tried to repay your debt.

A separate court action must be filed in your bankruptcy proceeding supporting your discharge request. You'll probably need an attorney to help with this.

Cancellation:  In some cases,  a student loan may be cancelled.  This means that it no longer must be repaidpay  However, doing this is also difficult.  You will have to meet certain conditions depending on the type of loan.  In some situations, you won't be able to cancel the entire loan balance, but may be able to get a cancellation a portion of it.  Genrally, having some type of disability or economic hardship qualifies.

Some circumstances make you eligible for cancellation only; some make you eligible for both cancellation and deferment; and still others make you eligible for deferment only.  The Student Loan Borrower Assistance website at www.studentloanborrowerassistance.org discusses conditions for cancellation/deferment in more detail.  You can also contact your loan holder or the Federal Student Aid office (800-621-3115 or  http://www.ed.gov/offices/OSFAP/DCS/index.html) to determine if you qualify for cancellation.


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