Are you one of the many student loan borrowers struggling to make your loan payments? If student loans are the reason you lie awake in bed at night, then you should know there are ways to deal with your loans without fleeing to Canada and picking up a new identity. After all, you should be able to escape your student loans without committing identity fraud, right?
You’re probably not alone in wondering what your student loan options are. In September 2017, the Department of Education released statistics showing that 11.5% of student borrowers who took out loans in 2014 defaulted on their loans. That’s 580,671 borrowers who defaulted out of the five million who borrowed money that year.
If you’re among that group of borrowers, or even if you’re just starting to think about the options out there to make your payments, you might be on the lookout for a back-door exit away from your student debt.
You wouldn’t be the first one to wonder if there’s a way to get out of paying your student loans legally, like declaring bankruptcy. The honest answer is getting out of your student loans by declaring bankruptcy is pretty difficult. Let’s take a look at why that is, and other options available to make your student loans more manageable.
How can you get out of student loans legally?
Unfortunately, you can’t declare bankruptcy to discharge student loans, except in the rare case that you can qualify for undue hardship. Before 1976, you could more easily go to the courts and ask them to discharge all of your student loans if you were struggling to pay them.
Then, through 1998, legislation passed that put a five to seven-year waiting period before you could declare bankruptcy to get out of paying student loans. Since then, laws have become increasingly strict. As of 2005 legislation passed closing off the possibility of discharging your private student loans through bankruptcy altogether, except in very specific circumstances.
Why did the door close on declaring bankruptcy on student loans? Handing out student loans is risky for both the government and the private lenders who offer student loans. The borrowers (i.e., the students) often have little to no credit and don’t yet make enough to support their repayment.
If lenders were determining student loan interest rates based on associated risk, the interest rates would be quite a bit higher than they currently are. Essentially, removing the option for most borrowers to declare bankruptcy on student debt puts the lenders in a slightly less risky position.
Of course, there are some legal ways, apart from bankruptcy, to get rid of your student loan debt, such as through student loan forgiveness programs. These programs are only applicable to students with federal loans, and some of the programs are only available to graduates who work in eligible jobs. Furthermore, all of the forgiveness options require years of on-time payments before your loans are forgiven, and you sometimes have to pay taxes on the forgiven loans.
Can a lawyer help me get out of my student loans?
To be eligible for bankruptcy, you must file for either Chapter 7 or Chapter 13 bankruptcy. You can also apply for a permanent disability discharge if you have a permanent disability that will keep you from ever being able to repay your loans. Many states have additional requirements as well, therefore hiring an attorney can help navigate the legal process and prevent any further issues in court.
Unfortunately, it takes more than a good lawyer to get you out of paying your student loans. You wouldn’t be the first to think that, but there are very few people who have succeeded through this strategy. And the legal fees probably might not be worth it.
How do you prove undue hardship or disability?
Another step in order to get your student loans dismissed legally, through bankruptcy, is proving undue financial hardship, you’ll most likely be evaluated by the courts using what’s known as the Brunner Test. If you can prove undue hardship by meeting the Brunner Test’s qualifications, then you may be able to have your student loans as part of your bankruptcy.
The test asks whether you would be able to maintain a basic standard of living while repaying your student loans, whether you can prove that your undue hardship is likely to last through most of your repayment period, and if you’ve tried in good faith to repay your student loans before.
It may be possible to get your student loans discharged without going to court if you have a permanent disability. But it’s still very difficult to apply for a total and permanent disability discharge You need to fill out forms and show the Department of Education that you are not able to earn an income now or in the future because of your disability.
To do so, you need to get an evaluation from a doctor, submit evidence from Veteran’s Affairs, or show that you are receiving Social Security Disability Insurance. But you cannot apply for disability discharge until you have been disabled for 60 months, unless a doctor writes a letter saying that your disability and inability to work will last at least 60 months.
Unfortunately, not all private student loans even give you the option to discharge your loans if you’re permanently disabled. So while you might be able to discharge your federal student loans because of disability outside of the courtroom, that’s not necessarily the case for private loans. If you’re permanently disabled and looking to get out of private loans, you will probably have to take your lender to court.
How can I make my loans cheaper?
If the idea of trying to discharge your loans sounds exhausting and not at all feasible, remember that there are other legal ways to make your student loan payments more tolerable. There are alternatives that can make your student loans more affordable without completely discharging them.
With federal student loans, you can apply for income-based repayment programs that may cap your monthly payments between 10% to 20% of your income, depending on your eligibility. There are some downsides to these plans so be sure to research the difference between them.
You can also apply for forbearance or deferment, which allow you to put your payments on hold while you are experiencing financial hardship, however there may be interest that can still accrue with these plans.
Finally, there are student loan forgiveness programs , which forgive your loan balance after a certain number of years.
Some of the eligibility requirements for forgiveness programs are tied to working in the public sector, and generally forgive your loans with after 10 years. However, some forgiveness options require 20 to 25 years of payments—and you may have to pay taxes on the amount forgiven.
Another way to make your student loans more affordable is to refinance your student loan debt. By refinancing your debt, you can potentially qualify for a lower interest rate, which can possibly reduce your monthly payments, or save you money on interest over the life of your loan.
If you refinance with a private lender, you can also change the term length on your student loans. While private lenders like SoFi can refinance both your federal and private student loans, you should know that in doing so, you lose some protections that federal student loans provide like income-based repayment programs.
Interested in finding out how much you can save by refinancing your student loans? Learn more about SoFi student loan refinancing today.
SoFi does not render tax or legal advice. Individual circumstances are unique and we recommend that you consult with a qualified tax advisor for your specific needs.
SoFi Lending Corp. is licensed by the Department of Business Oversight under the California Financing Law, license number 6054612.