Student loans are a hot topic-Forbes calls it a 1.5 trillion dollar “national crisis”. (Forbes, June 2018). New Hampshire’s class of 2016 has the highest average student loan debt per student ($36,367) in the country. As of June, 2018, student loan defaults (more than 90 days delinquent) are at almost 11%.
Here are the answers to 5 commons questions about bankruptcy and student loans.Are there different types of student loans?
- Are there different types of student loans?Basically, there are 2 different types of student loans that you need to be aware of: government guaranteed loans and private (non-government) loans. Private loans are typically offered by schools as a financial incentive to enroll.
Can student loans be discharged in bankruptcy?
If your loan is a private loan, i.e. not guaranteed by the government, then you may be able to discharge it in a bankruptcy, if the loan was not used solely for educational purposes. The IRS has complicated rules about “educational purposes”-basically, though, if you borrowed more than the cost of your tuition, fees, books, etc., then your loan was not solely for educational purposes. Another loophole is where the school is not approved by the Federal Department of Education (DOE) for student aid programs; if the school is not DOE approved, then the loan can be forgiven.
- Are student loans forgiven if the school goes out of business?
Usually, if a school closes, loans are not necessarily forgiven. In order to get those loans forgiven, you would need to file an application with the DOE, and meet specific criteria. For example, if you paid tuition and fees for courses, and the school closed during the semester, and you could not complete the courses, nor could you get credit for them. The DOE can also make exceptions for fraud.
- Are there other options for forgiving student loans?
If you are deemed disabled by Social Security disability, then you can apply for student loan forgiveness.
There are also government loan forgiveness programs for public service employees and teachers in low-income communities, where after 10 years of employment, the balance of the student loans is forgiven.
- What is the one thing that most people don’t know about student loans?
Unlike other debt, government guaranteed student loans have no statute of limitations, so if you don’t pay the loans, they don’t go away. The government even has the power to take money from your social security disability and retirement benefits to pay for delinquent student loans.