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Federal Student Loans Bankruptcy Discharge – Optometrists typically graduate with $200,000+ in student loan debt, typically at a federal interest rate of 6.8%. The majority of ODs will eventually refinance their student loans with a private lender to get a significantly lower interest rate of around 2.5-3%, essentially speeding up their loan payoff period.
According to the CDC, “26% of people experience a period of disability before age 65,” so it’s no wonder why many optometrists worry about not being able to pay off their massive debt if they can’t take home. Fearing a large doctor’s salary even more, many ODs worry that they will be stuck with their debt when their loved ones die or become permanently disabled.
Federal Student Loans Bankruptcy Discharge
In this article, we clear up misconceptions about student loans (both federal and private) in the case of death and permanent/total disability.
My Student Loans Were Discharged In Bankruptcy But They Are Trying To Collect
According to the CDC, “26% of people will experience a period of disability before age 65,” so it’s no wonder why many optometrists are worried about not being able to pay off their massive debt if they can’t take home a large doctor’s salary. Even scarier. , many ODs worry that their loved ones will be stuck with their debt in the event of their death or permanent disability.
This is very straight forward, once you are declared medically dead, you will need to submit a death certificate.
You must file Chapter 7 or Chapter 13 bankruptcy and show that repayment would cause an undue hardship on you and your dependents. This must be determined upon filing by an adversary in bankruptcy court. Your creditors may be present to challenge the claim.
Bankruptcy Courts: Determine your undue hardship by the following factors to determine whether being required to repay your debt would cause an undue hardship:
Discharge Student Loans
Federal student loans are backed by the US Department of Education and offer unique perks you won’t find with private student loans. Some of the benefits of federal student loans include lower interest rates, income-based repayment options, and access to student loan forgiveness programs.
In some cases, your federal student loans can be discharged after declaring bankruptcy. However, a bankruptcy discharge is not an automatic process.
Once a bankruptcy court determines your “undue hardship” through 3 factors (see above), then you may receive 3 possible terms:
When I was a new OD graduate in 2015, there weren’t many private lenders out there, especially not for ophthalmologists. Today, due to competition in the space, interest rates are historically low and many (but not all) private lenders offer similar federal benefits such as forbearance, death forgiveness or total disability (TPD) and a cosigner’s release.
Does Bankruptcy Clear Student Loans?
Let’s talk about bankruptcy with personal refinance loans. Refinanced student loans are essentially new loans taken out with a private lender – so when talking about whether refinanced student loans are dischargeable after bankruptcy, you should look at them as consumer loans.
There may be some circumstances in which personal student loans can be discharged due to personal bankruptcy, but keep in mind that personal student loans are rarely discharged in bankruptcy.
Now let’s go through all the popular Private Refi lenders and what perks they can offer in terms of forgiveness:
Trusted has the largest list of banks they work with, so forbearance and release on death/disability depends on individual lenders | List of Trusted Lenders:
Biden Harris Administration Announces New Guidelines For The Discharge Of Federal Student Loans
Similar to reliability, the 5 banks they partner with have forbearance and discharge on death/disability dependent on individual lenders.
Because Lendkey works with a variety of smaller credit unions and banks, forbearance and death/disability releases depend on individual lenders, but overall, they strive to provide these same benefits across the platform.
Lendky: “It’s definitely not something that happens often, given the relatively young age of the borrower demographic; But if it does happen, we notify the lender immediately, and if it doesn’t fall into one of the above two scenarios, the lender decides how to handle the situation. These lenders are often nonprofit credit unions and community banks that do everything they can to support their members and customers, but there is no guarantee of forgiveness in the event of death or disability.
Although First Republic Bank has offered direct student loan refinancing in the past, it no longer does. Instead, it has replaced traditional student refinancing by allowing ODs to turn student loans into a personal line of credit. This prevents OD from refinancing with another student lender in the future
Student Loan Debt Elimination
In the past, refinancing your federal student loans meant you lost all the important federal benefits that protect you from financial disaster, but that’s no longer true. With the competitive market of private lenders, trying to get your student loan business and offering similar benefits, refinancing your federal loan to get a lower interest rate is absolutely not necessary! Make sure you are not pursuing any federal forgiveness programs like 10-year PSLF or 20-25 full forgiveness or if your debt-to-income ratio is 3:1 or higher.
As always, Dat and Aaron are here to help you on your student loan journey. Here are some amazing refi student partners we partner with to get you the lowest fee + best benefits!
Want to learn how to manage your student loans? Check out the Optometrist’s Guide to Student Loans
Overcoming a Mountain of Debt: Paying $242K in 7.5 Years on a Starting Salary of $85K as an Ophthalmologist
Student Loan Debt In Bankruptcy
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Dr. Bui is an Ophthalmologist at Apple Wellness Center in the heart of Silicon Valley. He has a deep passion for ophthalmology and healthcare technology. He started his career with $220,000 in student loans and was able to pay off this massive debt in 5 years using budgeting and personal finance strategies along with aggressive investing. He is a big advocate of passive index funds with a small portfolio of individual tech stocks. Ultimately, he wants to help all new doctors and high-income professionals move toward wealth and financial independence.
Want to get the latest Optometry FinancialNews to succeed? | Don’t worry, Dat & Aaron hate SPAM too! There are many myths and misconceptions about whether you can discharge student loans in bankruptcy. Many people believe that you cannot discharge student loans in bankruptcy. Furthermore, most bankruptcy attorneys will not attempt to discharge student loans in bankruptcy. This is where our experienced student loan attorneys come in.
The truth is that you can discharge student loans in bankruptcy. The process may be difficult, but the possibility of discharge should no longer be ignored. Only 0.1% of people with student loans in bankruptcy seek discharge of their student loans. According to a 2011 study, about 40% of those who do are successful.
Changes For Student Loans Bankruptcy Guidelines
The myth that you can’t pay off student loans in bankruptcy has been around for years. According to one bankruptcy judge, the “undue hardship standard” has become a quasi-standard of mythical proportions and many people (bankruptcy professionals as well as lay people) believe that student loans cannot be discharged in bankruptcy. Thankfully, the judge added that she “does not participate in perpetuating these myths.”
If you’re curious about your debt, we offer a free student loan discharge analysis. Answer a few questions about your debt and our student loan attorney can analyze whether your debt can be discharged from bankruptcy!
Yes! While not everyone is entitled to pay off student loans in bankruptcy, it’s not as impossible as many people would have you believe.
To determine whether you can discharge student loans in bankruptcy, you need to start by identifying the type of debt you have. In general, you need to know whether you have federal student loans or private student loans. Although it is possible to discharge federal student loans in bankruptcy, it is more difficult to discharge federal student loans in bankruptcy than it is to discharge private student loans in bankruptcy.
Should Student Loans Be Dischargeable In Bankruptcy?
Why? To discharge a federal student loan in bankruptcy, you must establish “undue hardship.” This can be difficult for many to prove. On the other hand, there are other ways to show that a personal student loan is dischargeable in bankruptcy (besides “undue hardship”). We discuss this in more detail below.
To begin the process of discharging your student loans through bankruptcy, you must first file for bankruptcy. The good news for you is that we have years of experience in bankruptcy and can expertly guide you through the process of choosing the right path for you, usually a Chapter 7 or Chapter 13 bankruptcy. You can discharge student loans in bankruptcy through any bankruptcy chapter, so we’ll advise you on which chapter is best for you.
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