What is Student Loan Debt Relief, and How Can It Be Prevented

More than 40 million people are burdened with tremendous student debt. That amount is calculated to be over $1.7 trillion. The average amount owed is about $30.000, with monthly installments of about $300. However, about 3 million borrowers have a debt of over $100.000 with monthly payments of over a thousand USD.

With these ever-accumulating interest rates, some students find it impossible to chip away at their premiums. However, the Biden administration took decisive action in giving relief to students with outstanding debts and not only.

What Amount of student loan debt can be discharged in bankruptcy?

It took years of effort for advocacy organizations. Still, finally, the Biden administration has announced that anyone with less than $125k of earnings a year gets $10.000 deducted from their undergraduate student debt. It happened this August and will affect students that receive Pell grants, which are reserved for those with low income. Their relief will reach up to $20.000.

This week marked the launch of the brief application for student loan relief. The US Department of Education announced that its approval would start on Sunday, Oct. 23. The waiting process is supposed to take between six and four weeks.

The two-year moratorium on student loan payments will be removed at the start of the new year. So, advocates argue that measures will make the required monthly payments more manageable for students all over the US and allow them to invest more in their education.

Difference between federal student loan debt relief & student loan bankruptcy

What are the problems with federal student loan debt relief & how is it different from student loan bankruptcy?

The primary difference between them is that you can discharge the whole student loan debt amount with bankruptcy. In contrast, the federal student loan debt relief discharged up to $20,000. Let’s have a deeper look at what Federal Student Loan Debt Relief and Student Loan Bankruptcy are.

Student loan debt

Student debt can be any money borrowed to cover an individual’s education costs.

The costs of attending higher education have skyrocketed in the past decade. It’s becoming increasingly difficult for the attending to pay without any debt. Many incur debts long before they understand the ramifications of paying that debt back.

Student loan debt can cover more than just the tuition. You can also use it for textbooks, fees, room, and board. Taking a student loan can be worth considering if you pursue a higher earning potential and satisfaction in your chosen career path.

What is student loan bankruptcy?

According to the US bankruptcy law, student loans are more challenging to get discharged than other types of debt. It is possible under certain conditions.

You can achieve this by taking an extra step to file an “adversary proceeding.” Before you declare bankruptcy, you need to consider all the alternatives, like deferment, forbearance, and income-driven repayment.

There is no bankruptcy specific to student loans. The IRS can keep any refunds and apply them to your federal loans in case of default.

How to start your student loan bankruptcy process

First, you need to consider which type of bankruptcy fits you better. Then have these in mind when filing.

Owning more money

You may end up owning more! There can be a significant drawback when using Chapter 13 bankruptcy when trying to get student loans under control. In this case, the bankruptcy court will decide how much you should pay your creditors monthly. In case of other higher-priority debts, you can accrue additional interest on the student loans. That’s in case the court lowers the size of your payments.

File only in case of more debt

File for bankruptcy only if you have other debts. The Department of Education might take this as an attempt at fraud that could indicate intent on avoiding the repayment of student loans. Student loan discharge is saved for people whose circumstances are beyond their control, so it’s not likely to win a case with just student loans as debt.

The type of loan matters

Your success depends on the type of the loan – you may have a better chance of discharging a private student loan than actually setting a federal one. This stems from the fact that federal loans are income-driven payments, and private ones aren’t.

Filling costs money

You have to pay court fees unless the court waives them. An excellent chance to have them waived is by acquiring the services of a bankruptcy lawyer with a track record in having student loans discharged. Yet, if you hire an attorney, the court can consider your situation fair enough not to discharge your loans.

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