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Student Loans and Debt Relief


Many people who have financial problems also struggle to make their student loan payments. Education debt creates extra challenges when it comes to developing a plan for getting out of debt and building credit. Understanding student loans, government debt relief programs and other debt relief options can help you make good choices while getting your finances back on track.

Bankruptcy Won’t Work—Unless

Bankruptcy reform in the mid-1990s made it very difficult to have student loans discharged in bankruptcy. Individuals who attempt to have student loan debt discharged in bankruptcy must engage in a separate proceeding. They must prove paying off their student debt is unlikely to happen and that doing so would cause significant hardship. 

Very few people have been able to qualify for such a discharge. 

However, you may be able to discharge other types of debt to free up money to pay your student loans. For example, in a Chapter 7 bankruptcy, the court discharges all eligible debt at the end of the process, which will give you additional cash with which to service those debts.

In a Chapter 13 repayment plan, your student loan debt is incorporated into a three or five-year repayment plan that includes all of your debts. While you’ll still owe the balance of your student loans at the end of the repayment plan, your other debt balances can be discharged. In addition, the automatic stay will protect you during bankruptcy, which means that lenders can’t pursue collection action against you.

Bankruptcy comes at a price; however: Your credit score will take a significant hit after filing for bankruptcy. Moreover, if you have relatively little in the way of consumer debt, such as credit card or medical debt, bankruptcy may not offer much, if any, relief.

Thinking of Defaulting?

There is no statute of limitations on the collection of student loans. Once you default, your lender can add significant charges to the principal balance to cover the cost of collections, as well as fees and interest

Collection actions include garnishing paychecks and tax refunds, levying bank accounts, and seizing personal assets. These actions can happen as long as the debt balance remains. While you may get back on track with a loan rehabilitation program, this can be difficult to arrange and manage.

While this can be discouraging, some relief is possible, at least for those who have federal student loans. The law requires student loan servicers to work with borrowers to create a repayment plan that is affordable for the borrower. However, it can still be difficult to juggle payments to creditors each month. 

There’s a Better Way

The best play is to go back to your lender and ask to consolidate your loans, enroll in a forgiveness program, or for a deferral. Federally backed student loans come with certain protections built in. Private student loans however leave you at the mercy of the lender. 

If you have both educational and non-educational debt, one option to consider is debt settlement from companies like you’ll find at

 A debt settlement company representative will negotiate with your creditors to reduce your balances in exchange for a one-time payment in full of an agreed-upon amount. You can pay off your debts for less than what you owe while also avoiding bankruptcy, if this is successful. The money saved can be applied toward your student loans. 

It should be noted that most debt settlement companies only negotiate medical debt, personal loans and credit card debt. They cannot help you settle secured debt, such as vehicle loans or mortgages. They also won’t be able to help you with federal student loan debt, though some may be able to help with student loans taken out through private lenders. Student loans and debt relief can be difficult to navigate, but options, albeit limited ones, exist. Understanding the types of debt you have, your balances, and options for repayment can help you regain your financial health.

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