Last week President Obama exercised his executive authority and made more borrowers eligible for an existing program capping student loan repayments at 10% of an individual’s monthly discretionary income. In addition, after 20 years in the Pay As Your Earn Program, any remaining debt is forgiven but the balance is subject to federal tax income for the majority of borrowers. However, the law will not go into effect until the end of 2015.
Pay as You Earn Program
To qualify for Pay As You Earn, borrowers must have a partial financial hardship, meaning if the monthly amount required to be paid on eligible federal student loans under a 10-year Standard Repayment Plan is higher than the monthly amount required to be repaid under Pay As You Earn.
“’While the Pay As You Earn directive is a positive development and will particularly help graduates in public service jobs, it may not come close to helping the 5 million or so borrowers the administration believes will qualify for the program,’ said Mark Kantrowitz, senior vice president and publisher of Edvisors.com and a nationally recognized college financing expert. At best, Kantrowitz expects several hundred thousand borrowers to enroll,” as reported on Reading Eagle’s Money section.
Private Lenders & Smarter Borrowing Act
The Obama administration also plans to negotiate contracts with private student loan lenders to increase incentives offered to borrowers, helping them to pay off their loans in a timely manner. In addition, they have also been challenging Congress to pass legislation letting borrowers refinance their student loans at lower interest rates. However, the Senate blocked the proposal earlier this month by a vote of 56-38, with 60 required.
Hope is not lost in helping to alleviate the mounting $1.2 trillion in student loan debt. There was another proposed legislation introduced in 2013 called the Smarter Borrowing Act, providing entrance and exit counseling for borrowers to help teach graduates about repayment options and help reduce default rates.
But is there a solution to this looming financial crisis? Not quite. Fortunately, bankruptcy exists as an option for other debts that could help lighten the student loan burden.
Student Loans and Bankruptcy
While generally student loans are not covered by bankruptcy, it is a mounting financial crisis impacting more than 40 million Americans. Even if someone does not have student loan but marries someone who does, their joint income is considered in the repayment of the loans. Chances are, this married couple also carries other debts and the combination can be too much to manage. Bankruptcy may be an option to help discharge qualified debts. If you are seeking financial relief, a consultation with a bankruptcy attorney can help you review your options.
While there may not be a solution for the student loan crisis just yet, the many discussions of these plans and programs could provide some relief in the near future. In the meantime, for those struggling with other debts, bankruptcy may be a viable option worth exploring to help you get the fresh start you’re seeking today.
Cost of Filing
Almost everyone who is going to file for bankruptcy is in a tough financial situation. However, there is also a cost to working with a bankruptcy law firm to figure out how to handle the case. Always remember to get solid financial advice in this area. The decision to make is a huge one, and this should only be done after talking extensively with a bankruptcy law firm. Quality bankruptcy lawyers should be able to walk their clients through the cost of filing and the different processes that are involved. At the end of the day, it is vital that the correct decision is made. Over the long term, this is one of the most important financial decisions that anyone will make.
Types of Bankruptcy
Many people do not realize that there are several types of bankruptcy that can be filed. One of these forms of bankruptcy allows a person to be on a payment plan to get rid of some of the debt. However, the other form of bankruptcy simply absolves a person of all of their debts. There are pros and cons to both, but the fact of the matter is that anyone in this situation is going to need long term help with their finances. People who are struggling with their finances in North Carolina need to contact people in the area who have experience with bankruptcy law. Choosing a high quality attorney to fight in your case is one of the most important decisions that you can make during the process.
Life After Bankruptcy
The good news for people who go through the bankruptcy process is that there is life after bankruptcy. Although it is hard to imagine, there is a way to get out of bankruptcy and prosper over the long term. However, it is important to change the financial decisions that you made earlier in your life. This is the best way to ensure you are not in this situation again. A bankruptcy will harm your credit score for many years after it is filed. Start working immediately on building back up your credit score and to get back on solid financial footing