It's hard to find a person without student loans these days. There are currently thirty seven million borrowers who have outstanding student loans. If you're a part of this group, or will be soon after graduation, you understand the basics of how student loans work. But are you aware of your options when faced with an unexpected change of circumstances? There are a variety of events that may affect your ability to make payments, and it is best to be prepared for them. Read on to learn how your student loans are affected in five hypothetical situations.
- You lose your job. Your best option is to put your loans on deferment right away. This means that, temporarily, you may stop making payments on your student loans. This will buy you some time while you look for a new job. You will need to contact your lender in order to set up this process. If you do not qualify for deferment, forbearance is another option. However, forbearance is usually reserved for times of extreme financial hardship or illness. Because unemployment is often temporary, deferring your loans is the ideal choice.
- You enlist in the military. Again, your best option is to put your student loans on deferment. Active military duty may qualify you. In this situation, it is important to remember that most deferments are only offered for a limited amount of time. Speak with your lender for more information about deferring payments while in active military duty.
- You fall extremely ill. Again, attempt to defer your student loans first. In this situation, if you do not meet the criteria for deferment, you may qualify for forbearance. Forbearance is granted at the discretion of your lender, and is only offered for a limited amount of time. They are usually reserved for times of extreme financial hardship or illness. The interest is capitalized at the end of the forbearance period, and you will end up owing more if you choose not to pay the accruing interest.
- Your spouse or family member passes away. The process of shifting or discharging student loans after death can be lengthy, so it is best to begin right away. Each lender has its own rules, so contact yours for more information. Federal loans are easier to discharge than private loans. If the borrower took out a Parent PLUS loan, it may be discharged if either the student or their parent passed away. In other cases, the co-signer will be left to pay the charges. Almost all lenders require a copy of the death certificate to be sent to the student's school. It can take up to ten business days to review the death certificate and update the account to a "verified death" status. After that, it may be weeks or even months before the loans are discharged or shifted. Private loans are difficult to discharge, as they are not legally required to consider loan forgiveness. In fact, some private lenders may require co-signers to pay off the entire balance immediately after the borrower's death.
- You file for bankruptcy. Student loans are very difficult to discharge inbankruptcy, but it is possible. In order to discharge your student loan payments, you must show that payment of the debt will impose an undue hardship on you and your dependents. This is a challenging standard to meet in bankruptcy court. If you successfully prove undue hardship, your student loan will be cancelled. If you are thinking about filing for bankruptcy, contact an experienced bankruptcy attorney at Milavetz, Gallop & Milavetz. We will help you choose whether bankruptcy is the right option for you.
Knowing your options will ease the burden of a sudden change in circumstances. Prepare now, and you will have one less thing to worry about if your life takes a sudden turn.