Repaying Student Loans After Bankruptcy

After your bankruptcy case, you may have several different loans outstanding. Bankruptcy does not typically discharge student loans for individuals able to work. Consequently, it is a good idea to understand your repayment options for dealing with student loans after your bankruptcy case.

Loan consolidation can simplify the repayment process by combining your various loans into one monthly bill. The repayment term can be stretched up to thirty years at a fixed interest rate (rather than a variable rate found on most student loans).

There are many repayment plans available and selecting the best repayment option can be a daunting task. The repayment options for Direct Loans and Federal Family Education Loan (FFEL) Program Loans are:

• Standard Repayment Plan – fixed payments for up to ten years to repay. The advantage of taking a shorter period of time to repay is that you pay less interest for your loan over time.

• Graduated Repayment Plan – payments are lower at first and then increase, usually every two years. Can take up to ten years.

• Extended Repayment Plan – payments may be fixed or graduated for up to 25 years. A longer repayment period means lower monthly payments, but more interest over the life of the loan.

• Income-Based Repayment Plan (IBR) – your maximum monthly payments will be 15 percent of your discretionary income (calculated as the difference between your adjusted gross income and 150 percent of the poverty guideline for your family size and state of residence). Your payments change as your income changes. Can stretch the repayment period up to 25 years.

• Pay As You Earn Repayment Plan – your maximum monthly payments will be 10 percent of discretionary income (see above). Your payments change as your income changes. Can stretch the repayment period up to 20 years. This program is only available for new borrower on or after Oct. 1, 2007, and must have received a disbursement of a Direct Loan on or after Oct. 1, 2011. If you have not repaid your loan in full after you made the equivalent of 20 years of qualifying monthly payments, any outstanding balance on your loan will be forgiven.

• Income-Contingent Repayment Plan – payments are calculated each year and are based on your adjusted gross income, family size, and the total amount of your Direct Loans. Your payments change as your income changes. Can stretch the repayment period up to 25 years. If you do not repay your loan after making the equivalent of 25 years of qualifying monthly payments, the unpaid portion will be forgiven.

• Income-Sensitive Repayment Plan – your monthly payment is based on annual income. Your payments change as your income changes. Repayment period is up to 10 years.