With the high cost of college tuition, many students have to borrow money to pay for their education. When they graduate, most students have every intention of repaying what they owe. However, sometimes the large balance in addition to the loan’s high interest rate can make it difficult to repay the debt.
For students with federal student loans, income-based repayment caps monthly payments at 10 or 15 percent of the borrower’s discretionary income depending on when the borrower first took out the loans. The payments are recalculated each year and are based on the borrower’s income and family size.
REPAYE, also known as the Revised Pay As You Earn repayment plan, caps monthly payments at 10 percent of the borrower’s discretionary income. Loans are forgiven after 20 years for undergraduate borrowers and 25 years for graduate borrowers.
Sometimes, however, students still have difficulty repaying loans under these plans.
There is an option to discharge student loans in bankruptcy if the borrower can demonstrate to a bankruptcy court that repayment of the loan would impose an undue hardship.
While there is no single test for the court to determine undue hardship, there are several factors it can consider in making its decision. Undue hardship may be found if the borrower could not maintain a minimal standard of living if he or she had to repay the loan, the borrower made good faith efforts to repay the loan before filing for bankruptcy and there is evidence to show that the hardship would continue for a large part of the loan repayment period.
If borrowers are struggling with student loan repayment or other debt, an experienced attorney can help.