Can You Discharge Federal Or Private Student Loans Through Bankruptcy?

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Brown cat in wires of desktop computer

Piglet gets away from the vacuum by hiding behind the computer. You may not have as easy an escape route from your loans.

Helping people understand student loans is our job at SALT™, and few are better at it than Betsy Mayotte—the director of regulatory compliance for American Student Assistance®(our parent company). We told borrowers to “Just Ask” her questions, so check out her answers below (as well as her cat—because if Piglet can’t make student loans better, what can?).

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Discharging Loans In Bankruptcy

I have Sallie Mae as my loan company, and [my loan] is through the U.S. Department of Education. Is this considered a private loan or federal? If I filed for bankruptcy, would it be possible to discharge this loan? I am unemployed, and I have no money to pay my debt.

Regardless of whether you have a federal or private loan, I’m afraid it is likely not eligible for discharge through bankruptcy—as education debt can only be discharged in cases of long-term and extreme financial hardship. Therefore, you’ll want to examine all your debt carefully and talk to a professional before deciding that bankruptcy is right for you.

The good news is that it sounds like you have a federal loan, which means you have many other repayment options available without declaring bankruptcy. First, ensure you are currently utilizing an unemployment deferment to prevent your loan from going past due while you seek full-time employment. Once you find full-time work, if the payment amount is not affordable, look into one of the many lower payment options available for federal student loans. Income-based repayment is an option that will actually adjust as your income does to ensure the payments stay affordable.

Please let me know if you have additional questions.

Paying Off A Tuition Balance

I was just informed that my school will not let me attend classes this fall unless I pay a balance of $4,000 that I owe from last year. How do I get a student loan to pay for this?

I’m afraid that schools can only approve federal student loans before the end of the period of time they will cover, so those won’t be an option for you. Some private student loans will allow limited funds for past due balances not more than 6 months or a year old for students still enrolled at the school. Your school should be aware of lenders that work with them for this purpose.

Another option might be to request a payment plan and pay the balance off over the school year. It may mean getting a part-time job, but if you are able to swing this and the school allows it, you’ll likely be able to pay the amount you owe with little or no additional interest.

Have a student loan question you need an answer to? Just Ask.

(Note: The questions and answers above are real; however, they have been edited for grammar and clarity, but not by Piglet.)

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