Student loan borrowers can finally have their day in court.
The Ministry of Education said this week, he will examine when borrowers can pay off their student loans, an indication that it may become easier to write off those loans in the event of bankruptcy.
The ministry said it was seeking public comment on how to assess undue hardship claims made by student loan borrowers to determine whether there is a need to change the way these bankruptcy claims are being made. evaluated.
Right now, “it’s almost impossible to release student loans in bankruptcy,” said Mark Kantrowitz, a student loan expert. “The problem was that undue hardship had never been defined, and case law has never led to a standardized definition.”
Meanwhile, US university loan balances have hit a record high of $ 1.4 trillion, according to Experian. The average outstanding balance is $ 34,144, up 62% over the past 10 years.
About 4.6 million borrowers were in default as of September 30, also up significantly from previous years.
The national student loan default rate is now above 11%, according to the Ministry of Education The data. Student loans are considered past due if you don’t make a monthly payment for 270 days. Your loan becomes past due the first day after you miss a payment.
“I’m encouraged that they’re asking the question,” Kantrowitz said of the Education Department’s request for comment, although “that doesn’t necessarily mean there will be policy changes.” .
Yet, he added, bankruptcy should only be considered as a last resort.
People with unmanageable student debt have several options to consider:
For starters, you may be able to defer payments with an adjournment or forbearance. A deferral allows you to suspend your loan for up to three years. If you do not qualify for a deferral, forbearance allows you to temporarily suspend payments for up to one year.
As a longer term solution, income-based repayment plans allow you to pay a percentage of your income rather than a flat rate, as long as you are below a certain income threshold.
And in some situations, you can have your federal student loan canceled, canceled, or canceled, although this often comes with its own. administrative obstacles.