Opportunity rich, cash poor, deeply in debt

New college graduates are opportunity rich. But most are unemployed and so cash poor they can’t even get a small payday loan.  Many are up to their ears in debt before opportunity begins to materialize.

But when it comes to student loan repayment, lenders know who their borrowers are. If you’re worried about your student loans, the first thing you should do is call the Default Prevention Department of American Education Services (1-800-328-0355). They can help you even if you haven’t missed a payment yet.

Repayment options to meet your needs

There are several alternative payment programs for student loans. Depending on how far behind you are in your payments, you may be able to stretch them out over a longer period and structure them to increase as your income increases. You can also defer payments of principal for a period of time.

You can sometimes obtain a forbearance with reduced payments, an extended repayment time, or a temporary cessation of payments until your career and financial circumstances improve. If you have several student loans, you can consolidate them into one loan and spread the payments over a longer period of time at a lower interest rate. In some circumstances, you may even be entitled to forgiveness of a portion of your debt.

The bad news: Debt-relief and student loans don’t mix.

Debt-relief programs

Student loans generally cannot be included in debt consolidation, management, or settlement programs. (To learn more, read What Should I Do? | Debt-Relief Options.) If you have student loans and are considering debt-relief options, chances are you will have to deal with them separately from your other unsecured debts.

Bankruptcy and the hardship test

Get legal advice

Discharging student loans in bankruptcy is neither easy nor likely. Student loans cannot be discharged unless you prove that repaying the loans would create a substantial hardship. Absent such a showing, the best that bankruptcy can do is make it easier for you to pay your student loans by eliminating some of your other debts.

If you have student loans and are considering bankruptcy, you should get legal advice from an experienced bankruptcy attorney. To learn more about bankruptcy, read What Should I Do? | Bankruptcy.

Hardship is a tough standard

Hardship for purposes of discharging a student loan is very difficult to prove. Many courts require proof that you would be unable to maintain a minimal standard of living if forced to repay your loans, that this state of affairs is not likely to change, and that you made a good faith effort to pay the loans before you filed bankruptcy.

The hardship standard applies no matter how old your student loans are. It applies to privately funded loans as well as loans funded and guaranteed by the federal government or nonprofit institutions

Chapter 13 may offer some benefits

Get legal advice

A Chapter 13 debt adjustment bankruptcy may offer some additional benefits where student loans are concerned. If you think you are a candidate for bankruptcy, you should discuss your student loan issues with an experienced bankruptcy attorney.

What Chapter 13 can and cannot do

Filing a Chapter 13 bankruptcy can stop collection actions, and allow you to cure defaults and start paying your student loans in an orderly manner. If you have accounting issues, you might be able to obtain a binding judicial determination of what is rightfully owed. In exceptional circumstances, you may be able to challenge the enforceability of a student loan debt.

Remember . . .

Absent substantial hardship, student loans cannot be discharged in bankruptcy. Even after your other debts have been discharged, you will still owe any balances remaining on your student loans.