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About 80% of outstanding student loans in the United States are government issued or government guaranteed. Government issued or guaranteed student loans offer far more favorable terms than private student loans. You can obtain a current printout showing all of your Department of Education loans at http://bit.ly/student-loan-transcript.
Private student loans have nothing to do with the federal government or the U.S. Department of Education. Instead they are issued by private banks such as Discover, Navient and Wells Fargo.
In almost every respect, private student loans are a bad deal for borrowers. Interest rates on private student loans are usually higher, repayment plans are much more stingy and debt collectors are more aggressive.
The main reason that students resort to private student loans has to do with caps on loan amounts for government loans. There are dollar limits on what you can borrow from the Department of Education - if your college or grad school costs more than these dollar limits and you don’t have the cash, your only option is a private student loan.
The second possibility has to do with timing. Even if you do not qualify for an undue hardship discharge, you can use bankruptcy to buy time. In a Chapter 7 context this means that you can use bankruptcy to eliminate your other debts and get rid of a house or a car you can’t afford, so that when you come out of bankruptcy you will have the money to pay off your student loans. In a Chapter 13 context this means that you can defer payments on your student loans for up to 5 years, pay down other debts and deal with your students in the future when Congress may have more options on the table.
Besides being difficult to prove, it is expensive to litigate in bankruptcy court.
Chapter 7 bankruptcy does have its place, however. Over the years we have helped many private student loan borrowers by filing Chapter 7 to eliminate tens of thousands of dollars of other debt. We have used Chapter 7 to surrender (with no penalty) houses, cars and jewelry that our clients would otherwise be stuck paying.
With all of this other debt gone, our clients exit Chapter 7 with sufficient cash flow to make payments on their student loan debt.
Chapter 13 can help you deal with private student loans, however. If you are struggling with student loans, you may be able to delay the collection process for up to 5 years - the term of most Chapter 13 plans. During the term of your Chapter 13, you may be able to pay your student loans as unsecured debt at a low percentage (such as 10 cents on the dollar). The remaining balance + interest will be due after your Chapter 13 is over, but that will be 5 years later. Further, Chapter 13 will discharge your other debts leaving you with more cash flow. Additionally, it is possible that Congress will reduce the legal protections currently afforded to private student loans, meaning that other payment options or a Chapter 7 discharge may be possible at some point in the future.
Finally, Chapter 13 creates something called a co-debtor stay which protects any student loan co-signers from collection while in Chapter 13.
Once your default is cured, you can qualify for one of the income-based payment plans, or for one of the loan forgiveness programs. The big picture here is that the Department of Education wants you to get back into compliance and there is likely a payment program which can work with your budget.
Click on the link below to visit the Ginsberg Law student loan law web site.
The Department of Education has put into place a variety of income based repayment plans that you can choose. These plans use a formula to reduce your monthly payment to a percentage of your income and to eliminate any remaining balance after a set number of years.
The goverment also offers loan forgiveness to public service workers to teachers. Like any government program, there are rules and exceptions to those rules. If you would like to learn more about your student loan repayment choices, please call Jonathan Ginsberg at 770-393-4985. The link to our student loan law web site is below.
If you have already read up about bankruptcy and are ready to get started, we invite you to download and complete our full intake package. This intake package gives us everything we need to prepare a Chapter 7 or Chapter 13 petition for your signature.
As always, we invite you to call our office at 770-393-4985 to ask any questions you may have.
NOTICE: Your information remains 100% confidential with Ginsberg Law. No one else will have access to your info. Your Privacy is always respected. There is no obligation for this review.
Consultations are always 100% FREE & 100% CONFIDENTIAL. Call Ginsberg Law now at 770-393-4985
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