After eight student loan payment pause extensions, the Department of Education (DoE) announced that the student loan payment pause will end this year. Interest on all student loans, which the DoE paused, resumes accruing on September 1, 2023, and payment is due in October.
The student loan payment pause was a welcome assistance for millions of borrowers during the pandemic. In August 2022, President Biden proposed a student loan forgiveness plan allowing low-to-middle-income borrowers to have up to $20,000 of student loan debt forgiven. But the Supreme Court (SCOTUS) struck that deal down.
Changes in repayment options
However, the DoE is not leaving borrowers hanging, and, despite the SCOTUS decision, other paths allow borrowers to qualify for federal student loan forgiveness. For those who do not qualify for forgiveness, there are repayment options available that allows them to pay a significantly lower amount of money per month than previous programs.
Is bankruptcy an option for loan forgiveness?
Typically, student loans do not qualify for discharge under bankruptcy, and most borrowers must continue making those loan payments regardless. However, in some cases, borrowers can have their student debt discharged if they can prove to the court that the debt poses an “undue hardship” on them and their dependents.
What is undue hardship?
Undue hardship is a very high bar to reach and it difficult to prove in bankruptcy court because it requires the borrower to show that if they repay the loan, they would be unable to maintain any standard of living. A borrower who is incarcerated or has a serious, debilitating illness or injury are two common examples that could be classified as undue hardship.
If borrowers do attempt to do discharge their student loans via bankruptcy, creditors can go to the bankruptcy trustee and object to the request.
Income-driven repayment
All hope is not lost, however. Borrowers can explore income-drive repayment options now before their payments resume. Borrowers must apply for these programs through the government’s website. After submitting an application, the DoE will process it and contact the loan borrower with a decision. Ultimately, with an income driven payment plan, a borrower’s monthly plan is manageable in relation to their income.
