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Can student loan debts be deferred?

Readers of this blog may recall that the Bankruptcy Code does not provide for the discharge of student loan debts, save for a very limited exception for severe hardships. Yet students in New Jersey are accumulating some very serious financial obligations.

According to recent data, that average New Jersey undergraduate runs up around $19,000 of debt. A graduate degree results in another $67,000 of debt, on average. For someone newly entering the workforce, that burden may make it hard to make a living, buy a house, or even make payments on other items, like cars or credit cards. 

Notably, the problem is affecting students outside of New Jersey, as well, with the national student debt totaling over $1.3 trillion. Congressional leaders are aware of this problem. A roundtable of Senate Democrats recently convened to brainstorm this issue. Ideas included refinancing loans at lower rates, adjusting the rates on Pell Grants to inflation, and even offering two years of community college for free. 

Although a Chapter 7 or Chapter 13 cannot get rid of student loan debt, a bankruptcy lawyer may still have strategies to offer. One option might be deferments on student loans. The ideal situation would be a period of time to stop not only payments but also interest from accruing. However, an individual generally must apply for a deferment from the loan holder. If the loan is already in default, the process may be harder but not necessarily impossible, through a retroactive deferment.

Closely related to a deferment is a loan forbearance. In that arrangement, payments can be halted for a period of time, but interest continues to accrue. The application is also made to the loan holder. Without the leverage of a potential bankruptcy filing, however, lenders may be less cooperative. The negotiating skills of an attorney can be put to good use in that situation.

Source: northjersey.com, “Congressional Democrats look at tackling student loan debt,” Herb Jackson, Feb. 3, 2016

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