OPTIONS FOR STUDENT LOAN DEBTORS
By Jay Fleischman
Shaev and Fleischman
e’ve all had it happen - a client
comes to you for help with his
or her debt problems.
laws are ever changed to provide
for discharge of student loan debt in
bankruptcy, consider these options.
We listen as they detail their financial
hardships, confident that we can help.
Options For Federal Loan Repayment
That is, until they drop a financial
atomic bomb at our feet.
The dreaded student loan.
In spite of our best intentions, there’s
nothing we can do because the client’s
problems stem from student loan debts.
For years we’ve told our clients that
bankruptcy won’t solve the student loan
problem. We’ve got insurmountable
standards to meet for discharge of
student loan debts, and it’s never a
For clients who may have a shot at
discharge of their student loans, the
next problem is one of finances: if
someone’s in bad enough shape to
meet the standards of 523(a)(8) then
it’s a good guess that they can’t afford
the legal fees required to bring the
Rather than send away the client with a
promise to get in touch if the bankruptcy
CONSUMER BANKRUPTCY JOURNAL
In the old days you had few choices for
federal student loan repayment. If you
couldn’t make those payments then
you had to scramble until your financial
situation turned around.
But the federal student loan game has
changed, giving you more ways to
remain in repayment. Your options now
● Standard Repayment: You pay a
fixed amount each year for up to ten
● Graduated Repayment: Payments
are lower at first and then increase
each year for up to ten years.
● Extended Repayment: You can
choose fixed or graduated payments
over a 25 year period.
Income Contingent Repayment
(ICR): The loan servicer calculates your
payment each year and based on your
adjusted gross income, family size, and
the total amount of your Direct Loans.
Your payments change as your income
changes, and the lender forgives any
unpaid balance after 25 years.
● Income Based Repayment (IBR):
Your maximum monthly payments will
be 15 percent of discretionary income,
the difference between your adjusted
gross income and 150 percent of the
poverty guideline for your family size
and state of residence (other conditions
apply). Payments adjust each year
based on your adjusted gross income,
and the unpaid balance is forgiven
after 25 years. For people who were
new borrowers on or after July 1, 2014,
payments are 10% of discretionary
income and the unpaid balance is
forgiven after 20 years.
● Pay-As-You-Earn (PAYE): Your
maximum monthly payments will be
10 percent of discretionary income, the
difference between your adjusted gross
income and 150 percent of the poverty
guideline for your family size and state
of residence (other conditions apply).
Payments adjust each year based on
your adjusted gross income, and the
unpaid balance is forgiven after 20
● REPAYE: Under this brand proposed
new system (which has not yet been
approved but is expected to be available
in 2016), payments will be capped
at 10% of a borrower’s discretionary
income. The repayment term is 20
years for students who took out federal
loans for undergraduate education
National Association of Consumer Bankruptcy Attorneys