More than two decades ago, the student loan income dependent repayment plan was created to help stem the rising number of defaults. in a nutshell, the plan allows borrowers to make payments of anywhere from 10 to 20 percent of discretionary income (defined as income earned over 150 percent of the poverty level adjusted for household size) with the promise of forgiveness for any remaining balance after a period of 20 to 25 years.
Sounds great, however, so far only a couple dozen borrowers have remained enrolled long enough to reach the finish line where all of their remaining debt is forgiven. In reality, many borrowers are unable to stick with student loan income driven repayment plans as they do not account for other obligations a borrower has. The calculation does not consider a borrower’s cost of living variations, other expenses, or unexpected financial curve balls that few see coming. Few Americans can cover the necessities, let alone paying on a 25 year student loan.
Consider that the federal poverty level for a single person is just shy of $12,500. Therefore, under the plan, any income over roughly $19,000 (150 percent of the poverty level) is considered discretionary. A single borrower lucky enough to make the annual median salary of 32K can expect to pay over two hundred a month on student loans for 20 to 25 years. However, with just over $2,000 to work with each month after taxes, it can be a stretch to cover not only student loans, but also rent, food, transportation, health care, car payments and other expenses, expected or otherwise, that inevitably pop up over time. Although many try to stay on track, it is all too easy to get behind.
To the quote, “nothing can be said to be certain, except death and taxes” one might also add student loan repayment. Unfortunately, when someone is in a difficult financial situation, like most taxes, student loans are not dischargeable in a bankruptcy so any financial strategy has to include a way to pay them back. Those who can stick it out on an income driven repayment plan probably should in hopes of getting the debt paid off and remaining eligible for balance forgiveness. To that end, sometimes bankruptcy can be an option for individuals or couples with overwhelming debt to wipe out dischargeable debt (credit cards and medical bills) so that they can use income to target debts that are not dischargeable.
Discharging Debt in Bankruptcy to Target Student Loans
Contact an Illinois Bankruptcy Attorney to Discuss Your Options
If you’re struggling to pay bills including student loan debt, it can be helpful to discuss your circumstances with an experienced bankruptcy attorney who can provide you with information regarding bankruptcy protection as a tool to get back on your feet. Although bankruptcy is not the best strategy for every situation, it is worthwhile to explore all your options to reach your financial goals. Contact the Peoria bankruptcy law offices of Charles E. Covey to discuss your options today at 309-674-8125.