Americans burdened with student loan debt are increasingly turning to bankruptcy to successfully pay off their debts. (iStock)
According to the Department of Education, an increasing number of borrowers who sued to seek student loan forgiveness are now receiving debt relief through bankruptcy after policy changes by President Joe Biden’s administration.
A total of 588 people filed lawsuits seeking discharge of student loans through bankruptcy between October 2023 and March 2024, a 36% increase compared to the previous six-month period. A total of 1,220 lawsuits were filed between November 2022 and March of this year. This trend is expected to continue, the Department of Education announced. statement.
In alleged cases, 96 percent of all borrowers voluntarily used the Department of Justice and Department of Education’s updated guidelines released in November 2022, which include a standard certification form that allows borrowers to more easily identify and provide relevant information in support of their forgiveness requests.
Previously, borrowers who wanted to file for bankruptcy had to prove they would face an undue hardship if their debt was not discharged. Now, borrowers must prove they meet three criteria to have their student loan debt discharged: they currently have no ability to repay their loans, they will not be able to repay their loans in the future, and they have made good faith efforts to repay.
“Our clear, fair, and actionable standards are helping struggling borrowers find relief that was previously out of their reach,” said Under Secretary of Education James Kvall. “This data should dispel the myth that struggling borrowers can’t have their student loan debt discharged in bankruptcy. We will continue to work with our partners at the Department of Justice to make it simpler and easier for borrowers to get the relief they need, as originally intended.”
If you have private student loans, you can reduce your monthly payments by refinancing to a lower interest rate. Visit Credible to speak with an expert and get your questions answered.
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Biden’s SAVE plan faces legal challenges
a Recent rulings The 8th Circuit’s decision effectively blocks the SAVE student loan repayment plan altogether. Education Secretary Miguel Cardona said in a statement that borrowers enrolled in the SAVE plan will be placed in an interest-free grace period while the Biden administration develops a legal defense of the plan in court.
“Today’s decision from the Eighth Circuit Court of Appeals blocking President Biden’s SAVE plan could have devastating consequences for millions of student loan borrowers struggling with monthly payments they cannot afford if the plan remains in place,” Cardona said. “It is shameful that a politically motivated lawsuit brought by Republican elected officials is blocking payment relief for millions of borrowers.”
The Biden administration Save valuable education After the Supreme Court struck down Biden’s student loan forgiveness plan, the (SAVE) plan The White House The SAVE Plan claims to reduce borrowers’ monthly payments to $0, cut monthly costs in half, and provide relief to borrowers who pay more than $1,000 per year. Additionally, borrowers with initial balances of $12,000 or less will have their balance forgiven after 10 years of payments. The plan currently includes: 8 million subscribers.
Initially, only some of the provisions of SAVE were Various policies, primarily a reduction in loan repayments from 10% of disposable income to 5% that was scheduled to take effect July 1, as well as new debt forgiveness under the program, have been stalled as a result of court-ordered blocks.
Private student loan borrowers can’t benefit from federal loan relief. But they can reduce their monthly payments by refinancing to a lower interest rate. Visit Credible to speak with an expert and get your questions answered.
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Borrowers struggling to make payments
Only 33% have made regular payments on their student loans since they reopened in October, and about half are seeking income-contingent repayment plans or complete forgiveness, Civic Science reported. investigation.
Student loan repayments increased again last October after a 42-month suspension of payments and interest accruals. After more than three years of suspension, many Americans have had to make significant adjustments to their finances to cover student loan repayments.
About 58% of student loan borrowers say they are at least “somewhat” or “very” worried about paying back their student loans, and more than 60% of borrowers say their student loan debt is affecting their ability to save for retirement. This concern has many borrowers looking for ways to pause their loan payments, even if it means interest continues to accrue on their debt.
“New data shows that the majority of loan holders are deferring payments, with 14% reporting that they are currently in one or more loan forbearances, meaning payments have been paused for up to 12 months. Additionally, 14% say they are likely to apply for forbearance,” the survey states. “Perhaps more concerning is that 9% of borrowers are behind on their loan payments, and 6% expect to default in the future. If repayments continue as they have been, the majority of student loan holders will experience forbearance, deferment, or delinquency at some point,” the survey states.
If you’re having trouble paying back your private student loans, you won’t be able to benefit from federal relief. However, you could consider refinancing your loans to a lower interest rate to reduce your monthly payments. Visit Credible to see your personalized interest rate in just a few minutes.
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