Many graduates of colleges and universities are affected by their inability to repay their student loans. Some may want to take the route of declaring bankruptcy with the hope of the student loan debt going away. However, because the loan was disbursed under a government initiative, applicants will be unable to relieve themselves of this loan as easily as when gained from private institutions.

Bankruptcy Code

Under section 523(a) (8) of the bankruptcy code, “an exception to discharge” (meaning a cancelation of the debt) will not be afforded to beneficiaries of loans made, insured or guaranteed by government agencies or paid in part by non-profit institutions for funds received as educational benefit, scholarship or stipend unless this payment will impose undue hardship on the debtor and their dependents. What this is basically saying is that student loan debtors can only relieve themselves of privately contracted student loans if they declare bankruptcy.

Undue Hardship

Proof of undue hardship is like pulling a camel through the eye of a needle. Standards vary from one state to another but generally, everyday excuses will not convince a judge to cancel your student loan debt. In addition, just the idea of you being able to afford an attorney is the first sign of your ability to service your student loan. No lawyer will take on your defense without charges as the profession is not government funded and legal aid attorneys are already overwhelmed with other court cases. Most attorneys will advise their clients that unless they have some form of disability that restricts their income generating capacity, they should forget about the route of declaring bankruptcy with the hope of getting their student loans canceled.

Declaring Bankruptcy

Declaring bankruptcy is a good mechanism for relieving yourself on some of your financial obligations. However, you first have to convince a bankruptcy court of your inability to meet your financial obligations and the steps you will adapt to in order to correct them while under bankruptcy protection. This is a good opportunity to focus on your student loan repayments as it will help to build your credit rating once your emerge from bankruptcy.

What to do after Declaring Bankruptcy

After declaring bankruptcy, your focus should be on recovery. There are several ways to reduce their student loan debt while under bankruptcy protection. One of the easiest mechanisms is to enroll in the National Guard. The National Guard has an incentive scheme that offers up to $10,000 in student loan cancelations. Training in the National Guard is only for a few weekends per year and your service is only required in times of war or natural disasters. Another mechanism is to offer voluntary service thorough one of the many social groups and organizations that receive government sponsorship. These organizations will pay a stipend and offer cancelation of some of your student loan debt. Another easy method of emerging from bankruptcy and repaying your student loan is by teaching in public schools for underprivileged, mentally and physically challenged students. Employment is this sector will realize 15% debt forgiveness for the first year of service and an additional 20% and 30% in the third and fourth years.

Consolidation Programs

Once you have emerged from bankruptcy and have gotten some of your debt relieved by social work, it is time for the next step. By this time your credit rating will have been repaired which qualifies you for student consolidation loans. By consolidating your loan, it relieves you of the student loan and gives you a longer period at lower monthly payments to service this new loan.