The Biden administration is working to change the Department of Education policy regarding federal student loans in bankruptcy, a high official told Congress.
âWe’re going to be looking at this aggressivelyâ¦ we’ll have more to say about it, hopefully soon enough,â said Richard Cordray, chief operating officer at the Office of Federal Student Aid (FSA), at the hearing of October 27. “It’s a somewhat complex issue, as bankruptcy always is, and there are competing considerations. But we think we can do more to reform this process.”
This development comes months after the Senate Judiciary Committee discussed a bipartisan bill, The FRESH START Through Bankruptcy Act of 2021, which would make federal student loans eligible for discharge from bankruptcy after 10 years of payments.
However, since bankruptcy has lasting negative financial consequences, it may also be worth considering alternatives such as refinancing private student loans. If you decide to refinance your student loan debt, visit Credible to compare interest rates without affecting your credit score.
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Bankruptcy student loan release is hard to get
During the hearing organized by the House Committee on Education and Labor, Representative Adriano Espaillat (DN.Y.) expressed his concerns about the way the ministry currently manages federal student debt in bankruptcy proceedings. In order to have Federal loans released, debtors must prove that the debt would cause “undue hardship” if it were to be collected.
“While there are statutory limitations that can and should be changed, the department could also take steps to reduce the burden on borrowers who are already in financial difficulty to make it easier for them to obtain reparation under the circumstances. ‘bankruptcy proceedings,’ Espaillat said.
The congressman then asked Cordray what the administration is doing to make it easier for borrowers to get their federal loans released in bankruptcy. Cordray said there had been discussions about bankruptcy reform between the Education Department and the Justice Department.
“We believe that we can do more to reform this process, and we are committed to doing so.”
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Cordray suggested that there should be an alternative to help borrowers who “are forced to go to court, if you can imagine, and talk about how miserable their lives are in order to beg some sort of relief. bankruptcy and rarely get it “.
He added that bankruptcy court is not the right place to seek this type of relief and that it does not offer the best results for borrowers who are unable to repay their federal student debt. Plus, applying for student loan relief through bankruptcy has its drawbacks.
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Consequences of filing for bankruptcy
While filing for bankruptcy can be a good option for badly delinquent borrowers who are struggling to repay their student loans, it does come with serious consequences.
Bankruptcy leaves a lasting stain on your credit report that can make it difficult to qualify for other financial products like mortgages, auto loans, and credit cards. Depending on which chapter of bankruptcy you file, you may also be required to liquidate assets such as second homes, investments like a stock portfolio, and even checking or savings accounts.
Plus, filing for bankruptcy on student loans is a lengthy and expensive process that is done by the courts. Once the file is submitted, the documents are considered public archives. For student loan borrowers who wish to avoid bankruptcy, student loan refinancing may be an easier alternative.
Browse the student loan rates from real private lenders in the table below and visit Credible to see the refinancing deals tailored to your needs. This way, you can decide if a new student loan repayment plan can prevent you from declaring bankruptcy.
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Should You Refinance Your Student Loans?
With no tangible results on bankruptcy reform at this time, federal student loan borrowers may consider refinancing their loans as the COVID-19 administrative forbearance period ends in January 2022. Student loan refinancing private can help you get a lower rate for your student. debt, which can lower your monthly payments.
A recent analysis by Credible found that qualified borrowers who refinanced their student loan debt over a longer loan term were able to reduce their monthly payments by over $ 250, all without increasing the total cost of interest.
Keep in mind that refinancing your federal loans to a private loan would make you ineligible for certain programs such as income-based repayment plans and student loan forgiveness measures like Civil Service Loan forgiveness ( PSLF).
To decide if refinancing a student loan is right for you, check out your free estimated interest rates on Credible. Then use a student loan refinance calculator to view your potential repayment terms.
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