The United States Supreme Court ruled against President Joe Biden’s attempts to instate federal student loan forgiveness on June 30, 2023. Many college graduates spent months hoping for relief from their debt.
However, following the Supreme Court ruling there is no immediate relief coming from the federal government. Starting on October 1, 2023, borrowers are once again required to start making payments on their student loans.
For many Americans, a period without student loan payments has allowed them to focus on paying off other debts and taking important life steps including buying homes or a car. But with payments and interest starting up again in October, many people may find their debts to be overwhelming.
There are still other ways to resolve your education expenses without losing financial stability. While bankruptcy typically does not fully discharge student loan expenses, it opens the way for other solutions such as reorganizing your debts and resolving other forms of debt.
As you plan for payments in October consider all of your options for getting those debts either paid off, resolved or restructured.
In addition to private options such as filing for bankruptcy, the federal government is providing new programs to help borrowers adjust to paying their loans again.
Federal Government Rolls Out Efforts to Alleviate Pressure for Student Loan Borrowers
To start off, borrowers who cannot make their monthly payments will have a more forgiving on-ramp period from October 1, 2023 to September, 30, 2024.
During this time you will not be considered delinquent, reported to credit bureaus, placed in default, or referred to debt collection agencies.
However, your debt could continue to accrue interest during this period so it is not completely consequence free.
Who is Eligible for Loan Cancellation?
President Biden has secured loan cancellations for around 2.2 million borrowers who either have pursued a career in public service or attended fraudulent colleges.
How Will Income-Based Loan Repayments Work?
Many borrowers will now also be able to see a more affordable path to repayment with the creation of the Saving on a Valuable Education (SAVE) plan. This will create opportunities to choose a low monthly payment based on your income.
Income-based rates can be more attainable for many borrowers, especially during periods of low to no income.
Previously loans based on your earnings were required to account for 10% of your monthly discretionary income. Under SAVE, that has been changed to 5%.
For borrowers who make about $15 an hour or less, their monthly payments could be nonexistent. This follows a change in what the government considers as non-discretionary income. Instead, your earnings will be protected and can be used for other essentials such as housing costs and groceries.
According to the plan from the White House, you will not be charged with unpaid monthly interest so your balance should not grow as long as you continue paying your monthly income-based amount.
How Long Do I Have to Pay Before Student Loans Are Forgiven?
Previously borrowers who had taken out less than $12,000 in loans from the U.S. Government needed to wait 20 years before their federal student loan balances would be forgiven.
Under the new student loan plan, remaining balances will be canceled after 10 years. This part of the plan in particular is geared towards helping community college students who typically have lower original loans than students attending longer or more expensive programs.
For borrowers who start with higher balances, they will continue paying their loans until they are resolved.
How Do I Sign Up for the New Student Payment Plan?
If you wish to enroll in the Saving on a Valuable Education (SAVE) plan, keep an eye out for the ability to enroll during late Summer 2023. Before your repayments start in October, you will be able to join the program.
According to The White House, if you are already signed up for the current Revised Pay as You Earn (REPAYE) plan, you will be automatically switched over to SAVE once it is active.
Understanding Bankruptcy and Student Loans
In most cases you cannot discharge your student loans through bankruptcy. However some individuals may be able to depending on their circumstances.
For many student loan borrowers, they are able to file Chapter 13 bankruptcy as a means of reorganizing their debts. At the end of their reorganized payments, your debt balance would most likely not be resolved. You would continue to make payments until the full balance was paid.
It is written into United States law that student loan debts cannot be discharged. However, other forms of debts such as credit card spending or medical bills can be dissolved through bankruptcy. Filing for Chapter 13 may be a good thing to consider if different forms of debts are making your financial situation especially stressful.
Bankruptcy is a powerful tool for taking overwhelming debts and making them manageable again. It can even put a stop to collection efforts such as garnishment.
With the end of student loan forbearance, filing for bankruptcy can extend that period and keep your payments on pause.
Financial Freedom Legal is a team of expert bankruptcy attorneys located in Richmond, Virginia. Our lawyers serve Virginians looking to get back on their feet and reestablish stable finances. If you’re stressed about student loan debt, don’t panic. Call Steve and Vee for a free bankruptcy consultation any day of the week.
