Submitted by Rachel R on Fri, 09/14/2018 - 10:46am
What are your options for student loan repayment?
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It’s far too easy to take on student loans. Federal loans to students don’t require a credit check, and they don’t cap the amount you borrow based on your ability to repay. When it comes time to pay back Uncle Sam, there are different repayment options. Today we’ll dig into those and also consider what happens if you can’t afford to pay at all.
Because you usually take on student loans when you’re young and have little financial experience, it can be some of the dodgiest debt you adopt. Plus, you can quickly get in over your head. However, it also affords you the opportunity to explore educational avenues you might not otherwise. It’s a balancing act.
Federal student loans offer a variety of repayment plans. Your options diminish if you miss student loan payments and go into delinquency or default. The best strategy is to change plans before your finances spin out of control if you can no longer afford your current repayment plan. Here’s a look at the available options.
If one of the above won’t work for you, you might need to pursue a plan based on your income. These offer discharge at the end of 20-25 years of payments and the amount forgiven is treated as taxable income. However, they can be beneficial for many troubled borrowers. You might not qualify for all these plans, so it’s important to do your homework.
Lower payments sound great, but that also means you’ll accrue more interest. When the repayment plan culminates in a debt discharge, if the debt skyrocketed with compounded interest, you could face an enormous tax bill.
Some payments plans listed above can see you owing as little as $0 a month. That sounds great, but the looming income tax liability can be crippling. If you can’t pay your debt because of extenuating circumstances that are ongoing, you might be able to discharge the debt in bankruptcy, which offers a much better outcome.
Debt forgiven in bankruptcy has no income tax consequence. The standard for student loan discharge is “undue hardship” meaning if you repay the debt, you can’t provide yourself and dependents a reasonable standard of living. The courts are now trending towards a more liberal interpretation of this standard, so it’s worth considering.
To find out more, read reviews from our clients then contact the Law Offices of John T. Orcutt by calling +1-919-646-2654 now to schedule a free student loan bankruptcy consultation at one of our locations in Raleigh, Durham, Fayetteville, Wilson, Greensboro, Garner or Wilmington.
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