For some people, defaulting on their federal student loans may feel inevitable. For others, it may be a choice. While that choice may be fruitful (though still not advised) in other industries when bankruptcy or settlement becomes an option, strategically defaulting backfires for federal student loan borrowers. Therefore, Ameritech Financial, a document preparation company that helps borrowers apply for federal repayment plans, urges, and helps, federal student loan borrowers to take steps to prevent default or get out of default to improve their future financial outlook.
Federal student loans are different from debt in other industries in two key ways: they are nearly impossible to discharge through bankruptcy and they are not subject to a statute of limitations. In most cases, student loans can only be discharged if the borrower can prove undue hardship, which is difficult to prove considering not all courts use the same test. Therefore, discharge through bankruptcy is not a reliable option. Also, collectors can pursue defaulted federal student loans until fully collected, so settlement is all but impossible.
“There’s really no reason to intentionally default on federal student loans,” said Tom Knickerbocker, Executive Vice President at Ameritech Financial. “Instead, borrowers should do everything they can to avoid defaulting for the good of their financial future.”
Without the possibility to discharge the debt in bankruptcy or settle for a lower amount, borrowers who default are stuck with bad credit, potential wage garnishment and tax refund offsets — which the federal government can do without permission — and few options.
Recently, politicians have been introducing legislation to ease the burden of student debt on borrowers — such as a bill to loosen the requirements for student loans to be discharged in bankruptcy. However, some researchers worry that would have the opposite of the intended result: it would increase defaults instead of decreasing them.
Instead of relying on new legislation to change the student loan landscape, Ameritech Financial suggests that borrowers focus on their own situation. Borrowers who are in default will have to get out of default by either doing default rehabilitation, which can only be done once, or consolidating their loans and starting over. Borrowers who are at risk for defaulting should look into repayment options, including those that base monthly payments on income and family size. Ameritech Financial helps borrowers with both courses of action, specializing in helping borrowers apply for repayment plans that will decrease their chances of defaulting again.
“To those people who may be facing massive student debt and weighing their options, please don’t consider ignoring the debt as one of them,” said Knickerbocker. “There are federal repayment plans that help the least equipped deal with their debt, so don’t despair. At Ameritech Financial, we help borrowers decide which plan they fit into and then we hold their hands in filling out paperwork and applying for it.” – Source