![]() ![]() “That’s when you become ineligible to take out new federal student aid. “At that point, it’s not just behind, it’s in collections,” Shafroth said. ![]() When you fall behind on a loan by 270 days - roughly 9 months - the loan appears on your credit report as being in default. “A lot of people write that off as: ‘There’s no way, it’s impossible.’ But it’s increasingly possible.” WHAT HAPPENS WHEN A LOAN GOES INTO DEFAULT? “Though it is difficult to get your loans discharged through the bankruptcy process, an increasing number of borrowers are eligible to get their loans discharged that way,” she said. Shafroth, of the NCLC, says that new guidance on student loan bankruptcy has been coming out in recent years. She advises that borrowers make sure they are speaking to a bankruptcy attorney who understands student loan bankruptcy, which requires a different proceeding than other types of bankruptcy. “But they may not be successful at discharging their loans.”įor borrowers who show that level of financial strain, chances are they have other options, Rodriguez said. ![]() “That doesn’t mean people shouldn’t look into it,” Rodriguez said. Borrowers must prove a very hard standard of financial circumstances, called “undue hardship.” WHAT ABOUT DECLARING BANKRUPTCY?įor most student loan borrowers, it’s still very difficult to have your loans discharged, or canceled, through bankruptcy. Education lawyers for the Trump administration concluded in 2021 that the education secretary “does not have statutory authority to provide blanket or mass cancellation” under the act. The Higher Education Act has been used to cancel student debt, but never at this scale. What’s more, there’s no guarantee Biden’s new forgiveness plan could survive another legal challenge. Many questions still remain about the plans, and it’s not entirely clear yet how they will work. But that process can take months, or even longer, so this attempt at cancellation won’t come quickly. Exactly who will be eligible and how much will be canceled will be decided through a federal rulemaking process. The White House hopes to provide relief instead by using the Higher Education Act, a broad federal law that governs the student loan program. Separately, the administration plans to pursue student debt cancellation with a different legal justification than the one struck down by the Supreme Court. Biden said borrowers can and should make payments during the first 12 months after payments resume, but, if they don’t, they won’t be at risk of default and it won’t hurt their credit scores. WHAT DID PRESIDENT BIDEN PROPOSE WHEN HIS PLAN WAS STRUCK DOWN?īiden announced a 12-month grace period when payments restart. The 6-3 decision, with conservative justices in the majority, also rejected arguments that a bipartisan 2003 law dealing with student loans provided the authority Biden claimed. The sharply divided court held the Biden administration overstepped its authority in trying to cancel or reduce student loans for millions of Americans, saying the administration needs the endorsement of Congress before undertaking so costly a program. In the long term, those financial choices offer little benefit, as some loans will continue to accrue interest while deferred.Ībby Shafroth, senior attorney and director of the Student Loan Borrower Assistance Project at the National Consumer Law Center, said that, of the two, deferment is generally a better option. Rodriguez says her organization always advises against deferment or forbearance except once a borrower has exhausted all other options. Does it make financial sense at that point? Probably not.” And it can affect Social Security, retirement, and disability benefits. “The federal government can administratively intercept tax refunds and garnish wages. “The repercussions of falling into delinquency can be pretty severe,” Rodriguez said. And many others qualify based on income and family size. If you’ve worked for a government agency or a non-profit organization, you could also be eligible for the Public Service Loan Forgiveness Program, which forgives student debt after 10 years.Ĭarolina Rodriguez, Director of the Education Debt Consumer Assistance Program at the Community Service Society of New York, emphasizes that anyone temporarily unemployed should be able to qualify for a $0 payment plan. You can see whether you qualify by visiting the Federal Student Aid website. ![]() If you’re struggling to pay, advisers first encourage you to check if you qualify for an income-driven repayment plan, which determines your payments by looking at your expenses. ![]()
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