What to do is you can’t pay your student loans?

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What to do is you can’t pay your student loans?

I owe $250 worth of student loans; private college loans which have defaulted and are currently in collection. This has been going on for 5 years now but I am unemployed and didn’t finish my college education. I can’t even pay the minimum payment of $1500 a month and I get calls every day. I am handicapped at this point and don’t know what to do. Is there a solution to this, or what steps can I take?

Asked on February 7, 2011 under Bankruptcy Law, New York

Answers:

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

Answered 10 years ago | Contributor

There are 2 situations that you may be able to be released from your student loan repayment obligation: 

Bankruptcy:  The general rule is that student loans are not dischargeable in bankruptcy.  However, if you can prove that repaying the loan would be a severe hardship for you (a very difficult requirement to meet), it may be possible.  Courts will consider several factors in determining this:

  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.

You must file a separate court action in your bankruptcy proceeding supporting your discharge request. You'll probably need an attorney to help you since you'll need to file a separate court action supporting your discharge request.  Certainly your disability will be a consideration.

Cancellation:  In some cases, a student loan may be cancelled.  Getting approval for this is by no means an easy task; you'll have to meet certain conditions depending on the type of loan it is.  In some situations, you won't be able to cancel the entire loan balance, but you may be able to get a cancellation of at least of a portion of the loan.  Genrally, having some type of disability  or economic hardship would qualify you to have your loan cancelled.

Some circumstances qualify you for cancellation only, some qualify you for deferment, and still others for both in part.  The Student Loan Borrower Assistance website at www.studentloanborrowerassistance.org discusses conditions for the cancellation or deferment in more detail and how to apply for such a cancellation.  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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