‘I want desperately to file for bankruptcy.’ I’m an attorney with more than $200K in student loans — how should I handle this debt?
Question: I’m an attorney with over $200,000 in federal student loan debt, and I desperately want to file for bankruptcy on these loans. I’m on an income-driven repayment plan and would like my student loans to be forgiven or eliminated, if that option is available to me. Can you please help?
Answer: “First of all, you’re not alone. Millions of student loan borrowers face a similar issue,” says Alexandra Wilson, a certified financial planner and director of financial planning at Facet Wealth. And you’re already doing some things right, like getting on an income-driven repayment plan (this is only possible with federal loans so you won’t want to refinance your loans) that helps make your payments more manageable.
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The good news is that if you’re looking for even more assistance, income-driven repayment (IDR) plans allow for adjustments when your income or family size changes. If your income takes a hit or you have a baby, IDR plans can be re-certified to account for the changes in your income and a recalculation can even make a payment as low as $0. You can read details here.
Since you’re already in an income-driven repayment plan, you may want to look into the possibility of qualifying for Public Service Loan Forgiveness. “Working in public interest law may qualify. Working for a 501(c)(3) organization or a government agency may qualify,” says Mark Kantrowitz, author of “How to Appeal for More College Financial Aid.” This program has very specific requirements, but loans can be forgiven after 10 years, says Wilson. The Public Service Loan Forgiveness program requires a borrower to work full-time for a U.S. federal, state, local or non-profit organization and make 120 qualifying payments under an income-driven repayment plan. (Read more about this program here.)
Getting student loans discharged in bankruptcy is tough, experts say. “Only about 0.04% of student loan borrowers who filed for bankruptcy succeeded in getting a full or partial discharge of their student loans,” says Kantrowitz.
There are two main methods for discharging student loans in bankruptcy. “One is to demonstrate that the student loans impose an undue hardship on the debtor and the debtor’s dependents and the other is to demonstrate that the student loans are not qualified education loans,” says Kantrowitz. Proving undue hardship requires an adversarial proceeding within a bankruptcy case (read more about that here), and the courts look to see that were you forced to repay the loan you would not be able to maintain a minimal standard or living, and that the hardship will continue for a large portion of the loan repayment period.
It may also be worth getting professional financial advice so you can make a budget, cut expenses and try to repay the loans faster. “You’ll have the information and guidance you need to put yourself in control of your finances,” says Wilson, “instead of letting student loans and bankruptcy control the next decade of your life.”
The good news? “While some struggle to make ends meet, there are many that have successfully created plans to tackle their student loan debt all while advancing their careers, starting families and buying homes,” says Wilson.
*Questions edited for brevity and clarity.