I am a college student. Due to a financial crisis, I took a student loan. Now I am not able to pay the loan. I thought of repaying once I had settled in. But unfortunately, I didn't get a job and my situation is worse than earlier

My credit score is very low so that I can't apply for a new loan. I was totally confused and my friend suggested me to file a bankruptcy proposal.

Does anyone know about the details of the bankruptcy proposal?

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    Is this in the US? Most student loans don't require repayment while you're still in school. – D Stanley Aug 20 '18 at 16:00
  • There are many types of bankruptcy in the US. en.wikipedia.org/wiki/… – RonJohn Aug 20 '18 at 16:07
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    Maybe someone could explain what a bankruptcy actually means for you. I don't know for the US, but in Germany it's 10 or something years before the debt can be dismissed if reasonable effort to pay it back was made or something like that. So it's basically a lot of time with nothing. – DonQuiKong Aug 20 '18 at 20:03
  • @DStanley This is true for loans taken by the student, but other types of loans (such as taken by a parent) require repayment to begin (relatively) immediately. (~6 months if I recall correctly) While that should not apply in this case, perhaps they mistakenly applied for the wrong type of loan? – GalacticCowboy Aug 20 '18 at 20:24
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    Please please find a financial advisor you can talk to about your options for your loans, whether it's through your school or the bank or just on general. You almost certainly have options to manage this situation you're unaware of. – Kat Aug 20 '18 at 23:35

My advice to you is probably not what you want to hear. It's based on the following assumptions:

  • You're still in school (according to the question), so you haven't had a lot of time to reach "maximum earning potential"
  • Student loans are VERY hard to get discharged in bankruptcy
  • You can work, just perhaps not in the field that you're studying (yet)

I would stop making the hole any deeper. If you can get a job that will let you pay for school with cash (meaning not borrowing any more), that would be my first choice. That may mean switching to a school that you can afford and/or working in a field other then what you're studying for, but that's not a luxury you can afford right now.

If you can't afford to pay for school, my next choice would be to take a year or two off to pay down the debt and save up for school later. You don't mention whether this "financial hardship" was a one-time thing or ongoing, so it's not clear whether this is feasible or not.

The bottom line is, you have to deal in the reality of your situation. There are many ways to get college assistance that don't require debt, and most states have very affordable colleges for in-state residents as well as need-based scholarships that might be more suitable to your financial situation.

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    I'd also mention community colleges. You can typically get an associate degree cheaper than even in-state tuition, which increases your odds of getting a job in your field, and the classes should mostly transfer over to a bachelor degree. – Ethan Aug 20 '18 at 19:04
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    Taking time off from school could be a terrible idea their income will increase substantially after they graduate, especially if they can get a deferment while in school. – Kat Aug 20 '18 at 20:51
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    @Kat, I think it really depends on the specifics. Sometimes taking time off from school can help you get your feet back under you so you can focus on your education. Also, not everyone is able to make enough, even with a degree, to make student loans a good idea. It depends on how large the loans are, where they live, and the field they are entering. Also, wouldn't getting a deferment count as taking time off from school? – Kyle A Aug 20 '18 at 21:39
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    @KyleA A deferment on the loan--not have to start payments or start accruing interest until after the OP has graduated. In which case it absolutely makes sense to stay in school for as long as possible (as cheaply as possible) and also work a job on the side. – user3067860 Aug 20 '18 at 21:54
  • @Kat The OP is already in a situation where they cannot handle the debt they have and has been unable to find a job. Taking on more debt is little more than gambling at this point. Bird in hand and all that. – jpmc26 Aug 20 '18 at 22:40

Income Driven Repayment (IDR)

Assuming you live in the United States of America, filing for bankruptcy is not the recommended way of dealing with a student loan. If you are having issues making payments and this is a Federal Student Loan (not private/commercial) you have the option of Income Driven Repayment plans.

IDR plans come in a number of flavors but everyone can receive one. IDR plans tie your monthly income to your payments so you should be able to pay a percentage of your income or pay nothing.

There are a few catches to IDR.

  1. your loans still accumulate interest
  2. there is a time limit to pay them off (it differs by plan)
  3. you must reapply each year and provide income documentation

I would suggest looking at the government literature to ensure you understand what IDR is.

I am a software engineer for a student loan company contracted by the federal government to manage a percentage of student loans.

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