or garnishing your income. You will be
given a set amount to pay each month
during the rehabilitation period which,
once completed, will result in your loan
being removed from default status. This
will enable you to pursue consolidation
and an income-based repayment plan.
To apply for an income-based
repayment plan, you will need to provide
proof of income in the form of paystubs
and tax returns. At our firm, we ask
clients to bring in six months of paystubs
and their two most recent federal and
state tax returns. Application forms for
the various repayment plans can be
obtained from the U.S. Department of
Education's website, or you can contact
the agency via phone to discuss available
options with a representative. If you
opt to hire an attorney specializing in
student loan issues, you will need to
complete a third-party authorization form
so your attorney can discuss your loans
and repayment options with Department
of Education employees.
Once approved for an income-based
repayment plan, you will need to make
the required number of payments (either
for 20 or 25 years depending on the
type of loan involved) and, at the end of
your repayment plan, you will be able to
have your remaining student loan debt
forgiven, regardless of the amount owed.
Currently, you do have to report
forgiven student loans on your taxes,
though it is possible in the future that
Congress will pass legislation that
removes any tax liability for forgiven
student loan debt. Since most people
not be in a position to complete their
plans until well into the future, it is
likely they will never have to cope with
the current tax consequences of loan
forgiveness. Consequently, borrowers
should focus on the benefits of lowering
their monthly payments to an affordable
amount through income based repayment
plans rather than focus on potential tax
consequences once their debt is forgiven.
For borrowers with federal loans
with government jobs, an attractive
option is the Public Service Loan
Forgiveness program. Before pursing
this program, you should ensure your
employer qualifies as a public service or
governmental entity (such as teachers,
nonprofit employees, government
workers), that you work at least 30
hours per week, and that you are a W2
employee as opposed to an independent
contractor. The program forgives any
remaining student loan debt once a
debtor makes 120 monthly payments
during the time he or she worked in
the public sector. The great thing about
this program is that there are no tax
consequences for forgiven debt. Once
you've made your 120
information, and employment verification
for each employer during the time you
worked in the public sector.
Borrowers with federal student
loans also can seek debt relief
through administrative discharges.
Administrative discharges may be
granted upon proof that a former student
has died, or has been declared to have
a total and permanent disability by a
in the United States. If a discharge
is sought for a temporary permanent
disability, the government will review tax
returns for three years after the discharge
is granted to ensure the borrower has
not experienced a significant increase in
income. Other administrative discharge
options are school-related and can
stem from a school closing before
a student earned his or her degree,
or where a school falsely certifies a
student's qualifications for admission.
Students also can pursue administrative
discharges for unpaid refunds, i.e. the
student never received the loan proceeds
and the school failed to refund said
proceeds to the federal government, or
where someone forged a student's name
onto loan documents.
While the above remedies are by no
means exhaustive, they provide a good
starting point for borrowers who want
to lower their monthly payments, avoid
default and ultimately discharge their
student loan debt. Regardless of loan
type, the worst thing a borrower can do
is go in default or sign up for repeated
forbearances. These have the short-
term benefit of putting payments off
to a later date, but have the long-term
disadvantage of interest accruing during
the forbearance period, which only
increases the outstanding loan balance.
Knowledge truly is power and can help
informed borrowers to significantly
reduce their student debt burden.