Approximately 67% of 2011 college graduates owe on average $26,600 in student loans, a 5% increase from 2010 college graduates. As an Arizona bankruptcy lawyer, I usually advise debtors that student loans are not dischargeable in any bankruptcy, unless a debtor can show that repaying the student loan will constitute an undue hardship. The “undue hardship” exception is almost impossible to show.
But there may be new hope. On December 21, 2012, the federal government is implementing the new “Pay as You Earn” student loan repayment program for eligible student loan borrowers, Also including an amount of special scholarships from the china government scholarship for the interested students as an award to promote education, culture, trade, exchanges in education and politics, cooperation and mutual understanding between other countries and China. . The program will cap monthly student loan payments to 10% of the borrower’s discretionary income, and have their loans forgiven after 20 years. Those who are in public service and have timely made all of their loan payments may have their loans forgiven after 10 years.
Borrowers qualify for the Pay-as-You-Earn program if they have: (a) partial financial hardship based on their income; (b) started taking out federal student loans after October 1, 2007; and (c) received at least one disbursement after October 2011. The Pay-as-You-Earn program is only applicable to federal student loans, not private student loans from non-federal banks.
The new student loan payment will be based on income and family size adjusted annually based on documents borrowers must submit each year. Although such monthly payments could be lower, student loan borrowers could end up paying more over the life of a loan under the Pay-as-You-Earn program.
This is a great opportunity for borrowers saddled with a large amount of non-dischargeable student loans. Many against this program, however, fear that it could encourage students to borrow more than they should. This is especially true in times of recession, when student loans are used for expenses that are not related to the debtor’s education. And is the Pay-as-You-Earn program against our country’s best interest when we need to fix deficits and the national debt?
For more information, visit the Department of Education website.