NEW YORK (MainStreet) If you find yourself in dire circumstances drowning in student loan debt, you may qualify for a full or partial student loan discharge.
If your student loan is discharged, you're no longer required to make the payments, and depending upon the type of loan discharge program, the U.S. Department of Education may refund part or all of your previous payments. Furthermore, you may be able to get any default information deleted from your credit record.
Student loans can be discharged if you become totally and permanently disabled or die, the school closed before you were able to earn your degree or it closed within 90 days after your withdrawal, you were a victim of identity theft, the school falsely certified your eligibility or committed other falsifications or the school did not refund money paid after you withdrew. Certain jobs also qualify for partial or full discharge.
You should know, however, that in some cases of student discharge, the school may be required to refund a portion of the loan to the Department of Education. If the school fails to do so, the responsibility for repayment will land in your hands.
If you're a parent who took out a PLUS loan to help pay for your child's education, the loan qualifies for discharge if your child died or you become totally and permanently disabled or die.
Bankruptcy is another way to get your student loan discharged, but you must prove that paying it back creates undue hardship on you and your family.
"You can't get rid of a student loan in bankruptcy unless paying the student loan is an 'undue hardship,'" says David Leibowitz, a bankruptcy attorney at LakeLaw in Chicago. "That doesn't sound so bad. But it is. Your idea of what 'undue hardship is' and the courts' idea are very different."
However, the bankruptcy courts appear to be easing up.
"If people have made a good faith effort to pay, they are living at something approaching a subsistence level and the circumstances are not likely to get any better, courts are more frequently finding 'undue hardship,'" Leibowitz says.
--Written by S.Z. Berg for MainStreet