Typically, you cannot discharge a student loan in a Chapter 7 bankruptcy proceeding. However, in some instances, if you are even having a difficult time paying off a student loan consolidation, your primary reason for discharging your student loan debt would be because of hardship. Legally, the debt can be forgiven if:

–The borrower is unable to sustain a lifestyle that meets the minimum requirements needed to pay for food and shelter for his family and himself. If circumstances are such that it looks like his standard of living is not likely to change for a long time and he has demonstrated a continued effort to pay down the loan amount, then the court will usually find in the his favor.

Protecting yourself from Collectors

If you can prove that you are suffering from hardship to the extent that trying to pay off the loan is next to impossible, then the court will erase the amount you owe. What’s more, filing for bankruptcy immediately and temporarily safeguards you from the actions of collectors until your case has been settled.

Steps to Take to Discharge a Student Loan Consolidation or Student Loan Debt: The Paperwork Needed at a Bankruptcy Proceeding

If you do go ahead and discharge a student loan, then you will need to supply the agency that is servicing your loan with three key documents, namely: a listing of your creditors, a document that is referred to as a “notice of first meeting of creditors”, and an order of final discharge. In addition, you need to file further documentation that is called an adversary proceeding so the bankruptcy judge can decide whether or not your situation is a hardship case, or you are experiencing circumstances where discharging you student loan debt is the best action to take.

To determine if consolidating your federal student loans will be helpful, you have to look at some of the benefits of consolidation. If your goal is to reduce your payments each month, then consolidation is a worthwhile undertaking. Plus, a student loan consolidation will lock in your interest rate.

Raise your Credit Score and Make Budget Planning Easier

Therefore, you know exactly what you will be paying each month as well, making it easier for you to plan your budget. Not only that, a consolidation will immediately raise your credit rating. Pay off several loans at once and take out one loan and you will definitely see your credit score soar. Plus, a student loan consolidation offers a number of repayment options, which, again, will make it easier to incorporate the payments in your monthly financial plan.

More Choices with Respect to Repayment

If you choose a Stafford student loan consolidation, you can obtain a consolidated loan, given the current economic climate, at a lower interest rate – good news if you want to stretch the payments out for a longer length of time. Plus, with this type of loan you are not penalized for early repayment so you can double up on your monthly payments if you so choose. If you select a Federal Stafford loan consolidation, expect the loan process to take about a month or two months versus the typical three or four months it takes to consolidate these kinds of loans.

Requirements for Funding

Borrowers should possess a balance of at least $20,000 to qualify for a Federally-funded Stafford loan consolidation. To consolidate the loans, you do not need to be currently employed or secure the loan with any kind of collateral. The fixed interest rate on the loan amount will be based on the weighted average of all the APRs of your current loans. Keep in mind that it is best to consolidate your loans during the grace period as that is when interest rates are usually reduced.

If you currently have outstanding balances on several Stafford loans, then a student loan consolidation of the loans can help increase your FICO rating. Credit scores are based on a complex algorithm that was created by the Fair Isaac Company – thus the name FICO, and determine the ability of a person to pay back a loan. The calculation is made based on what credit report information is reported by creditors to the three credit bureaus, or Experian, Equifax, and TransUnion.

The Importance of Maintaining a High FICO Score

In turn, banks and lenders look at the scores to analyze and decide the amount of risk associated with lending money to a prospective borrower. FICO scores that fall in a range of 720 or above are considered excellent while 675 to 719 is considered good. If your score hovers between 620 and 674, it is classified as below average, and a score of 620 or below is generally thought of as bad or considered subprime. As a result, borrowers with higher FICO scores obtain lower interest loans while the lower scores qualify for higher-interest financing. Therefore, it obviously is in your best interest (no pun intended) to maintain a good FICO rating.

Gauging Risk

Negative items that can adversely impact a score include collections, charge-offs, liens, foreclosures, bankruptcies, repossessions, and late payments. The amount of inquiries for credit can also lower your score as lenders see such inquiries as a means for a borrower to obtain money when he is experiencing some financial hardship. Therefore, technically, the FICO score determines the amount of risk for default, or gauges the chance that an account will fall delinquent past the 90-day mark.

The Criteria for Determining Scores

Credit scores are based on weighted averages consisting of one’s payment history, outstanding debt, length of credit history, recent inquiries, and the types of credit used by the borrower. Therefore, a student loan consolidation of your Stafford loans will impact the history on your report as well as the amount of outstanding debt.

How you can Raise your Score

For example, because you made no payments while you were attending college, then, of course, no payment history is shown on your credit report. However, if you, say, have three or more loans and consolidate them, then the transactions will show up on your credit report as paid-in-full on not one, but all of the loans – proof to lenders that you can meet their criteria for staying out of debt and making timely payments.

A Benefit Worth Considering

Plus, if you keep making the payments on your student consolidated loan, you certainly will increase your borrowing power. So, while your Stafford loans may come with a number of benefits, consolidation gives you the opportunity to improve your credit ranking and raise your financial standing in the eyes of a lender.

If you have several student loans you are struggling to repay, then you will, no doubt, tune in and listen to the benefits of a student loan consolidation. A student loan consolidation often is the answer as it reduces your monthly payments and spaces them out so you are given more time to repay your obligation. Extending the repayment schedule is necessary if you want to decrease the amount you have to pay monthly. So, while your monthly payments are lower, the payback amount increases over time. Still, for anyone who is barely meeting their expenses, debt consolidation is a realizable solution.

Read over the Fine Print of the Contracts of the Loans you want to Consolidate

In fact, if you opt for a student loan consolidation, the terms are often longer than the repayment schedule for other loans. Also, the interest rate on the consolidated amount is fixed and is based on a weighted average of the rates for the loans that are included in the financing. Again, while the monthly payment is reduced, you will still lose some benefits offered by the loans you wish to combine. Benefits, such as forgiveness, grace periods, and cancellation of the debt are not transferred if you choose to consolidate. So, make sure you look over the details of your loan paperwork carefully before you proceed and take out a student loan consolidation.

A Case in Point

Therefore, consolidation involves replacing outstanding balances with one loan amount. For example, suppose you have a couple ten-year loans – one for $15,000 and another for $10,000. If you are currently paying an interest rate of 4.5% on each loan, with payback scheduled for ten years, you can extend the time, say, by five years at the same interest rate and reduce your monthly payment by around $70.

Timing is Everything

In some cases, students may have variable APRs on their loans. Therefore, it is advantageous to consolidate as you lock in the amount of interest that you are paying. It’s best to consolidate then when interest rates are lower, especially since you are extending the length of time. Naturally, it is also to your benefit to wait to consolidate if interest rates are expected to fall.

The Main Benefits of a Consolidation

The main features borrowers like about consolidation are the fact that their interest is fixed and they can make one simple, monthly payment. Debiting the account electronically can also reduce the amount of interest they have to pay each month.

Sometimes it is Better to Keep Making Payments

Consolidation, however, might not be practical if you have already paid off a good portion of your loan. For instance, if you have already paid off six years of payments on a ten year loan, then you may want to reconsider any decision to consolidate. Make your determination based on what you are able to manage payment-wise. Therefore, keep the expense at a level you can afford for the shortest amount of time.

If you are a recent graduate from a post-secondary institution, then you may not be prepared to make those first payments on your student loans. Especially, if you now have a job and are making expenditures you couldn’t previously make, a student loan payment may throw you off course a bit. However, the debt has to be paid. So, you will need to include any payments in your budget.

The Grace Period

Typically, you are given a grace period between the time you graduate from college and the time of your first payment. Grace periods can vary, depending on the type of loans you took out for your education. For example, if you owe on a Federal Perkins loan, you have a nine-month grace period while a Stafford loan gives you six months from the time you graduate before you have to repay the loan amount. Fortunately, some loans come with requirements, such as an exit counseling session, so you will know what to anticipate with respect to repayment. Nonetheless, you should still review the paperwork for your loans so you can make the needed budgetary adjustments.

Repayment Plans

Some loans, such as the Stafford loan, offer various repayment plans. For example, Stafford offers a repayment plan that fixes the payments over the length of the financing. A graduated plan, just like it sounds, starts out with lower payments that gradually increase as time progresses. This is a good repayment feature for the college graduate whose income will also slowly increase over the time of the loan. Or, you can also choose an income-sensitive repayment plan, which bases one’s payments on their current salary.

Making Payments Electronically

In many cases, interest rates can be lowered if you have the payments electronically debited. This is one way to save on the additional cost and make sure that the payments are regularly made. Plus, debiting payments electronically ensures that they will be made on time, which keeps your FICO score in check and gives you borrowing power too.

A Student Loan Consolidation – Another way to Manage your Debt

Nevertheless, if the repayment process becomes too difficult to manage, a student loan consolidation is still an option that can reduce the amount you have to pay each month. By following the same guidelines you do for unconsolidated debt, you will make inroads financially.

Most federal student loans can be consolidated. So, if making the monthly payments becomes a chore on your student loans, then you have a way to alleviate the burden. If you are thinking of obtaining a student loan consolidation then, it is important to review the interest rates and benefits of the individual loans that you want to combine into one loan amount. As a consolidation can cause you to lose certain amenities you now enjoy, such as discounted interest or cancellation privileges, make sure the move will benefit you financially.

Features of the Perkins Loan

For instance, Federal Perkins loans are government-backed loans that offer low interest rates and are available for indigent students. Loans do not accrue interest as long as the borrower is taking classes or is enrolled, at the minimum, part-time. Repayment of the loan begins nine months after graduation or when the student is enrolled less than part-time. The repayment period is for ten years.

Perkins Loans: Requirements for Consolidation

Perkins loans can be consolidated into a Federal Direct Loan consolidation if they include an FFEL (Federal Family Education Loan) or Direct Loan in the financing. Therefore, Perkins loans cannot be consolidated individually. In addition, if they are consolidated into a Direct Loan, they are non-subsidized. That means interest will accrue on the loan amount even if the loan is deferred due to re-enrollment, economic hardship, or unemployment.

Consolidating Federal Student Loan Debt

The HEA (higher education act) encourages student loan consolidation via the Federal Direct Student Loan Program (FFDLP) program and FFEL (Federal Family Education Loan) financing. Both these consolidation programs make it possible for borrowers to combine varying kinds of student loans into one easy-to-pay consolidated loan amount. Interest is typically less than most of the eligible loans that can be included in the consolidation and payments lowered because the payment period is lengthened.

Benefits of Perkins Loans

However, Perkins loans do provide cancellation benefits that are forfeited if you choose to consolidate the loan. The grace period of nine months is also sacrificed if you elect to consolidate. In addition, if a Perkins loan is deferred, interest does not accumulate. Therefore, interest does not accrue on the loan amount if you need to defer payment because you re-enroll in school or experience some kind of financial hardship.

Cancellation of the Debt

One important note – if you financed your education with a Perkins Loan and are a teacher, you may be able to eliminate or cancel the debt if you teach a certain subject or have been teaching full-time in a school in a low-income area.

Choosing to Consolidate

Nevertheless, should you opt for obtaining a Federal Direct Loan for consolidation purposes, you have a variety of payment plans from which to choose, one of which you can fit into your budget in order to make it easier to pay back your debt.

Unconsolidated loan balances may be difficult to repay, thereby making it a necessity to consolidate your debt. However, before you make the decision, it is a good idea to look at some of the individual features of each loan to make sure you are making the right determination. You can lose certain benefits—such as discounts and cancellation privileges—when you consolidate, so make certain it is something you really want to do. In addition, consolidation can double the amount you pay back over the long haul, so a student loan consolidation is not a choice that you can afford to take all too lightly. That’s why it is good to review the features of your unconsolidated loan accounts.

Features of a Stafford Loan

For example, Stafford loans are federal loans that offer low APRs, generally are long-term, and are granted to students. Once your college career concludes, the loan must be repaid a half year or six months after you graduate. Also, if your status as a student is classified as less than part-time for a six-month period, then repayment must be facilitated. The loan can either be taken out in the form of a subsidized loan or as non-subsidized funding. The interest on a subsidized Stafford loan is government-paid and the student has a payback period of ten years on the loan.

Non-subsidized Stafford Loans

On the other hand, non-subsidized Stafford loans start accruing interest from the time they are granted to the borrower. In some cases, banks or lenders will allow the borrower to make interest-only payments while they are in school. Or, in other cases, the interest is added to the principal of the loan amount and therefore capitalized at the beginning of the period for repayment. Non-subsidized loans, in many instances, supplement unsubsidized Stafford financing. Again, students must pay back the non-subsidized loans within ten years.

When it comes to high-ticket expenses, then a college education certainly can be listed on that particular list. It isn’t surprising then that people who take out loans in order to finance their education must turn to student loan consolidation once they are making a living. Consolidation for student loans will, no doubt, continue as educational costs will continue to rise to keep up with inflation.

Student Loans – Another Prerequisite for a College Education

Even if your child has received a grant or scholarship to help fund his education, this kind of financial assistance is still usually not sufficient enough to cover all the costs. Student loans therefore offer the needed financial aid for students and their families to pay for the ever-increasing costs of collegiate programs.

Most Federally-funded Student Loans can be Consolidated

Student loans are noted by a number of features, including the loan’s APR, the maximum amount of available funding, loan terms for repayment, and whether or not the burden for repayment of the debt is directed towards the parents or the student. Most all federal student loans can be consolidated. In fact, the Federal Student Aid (or FSA) programs that are implemented by the United States Department of Education supply the major part of financial assistance for students pursuing a degree in the U.S. Private student loans cannot be consolidated.

Loans are based on an Individual Student’s Financial Needs

As a result, Federal Student Aid or FSA is offered to undergraduate students as well as graduate level students that are attending one of the affiliated institutions. The decision for granting funding is based on each individual’s need financially.

Bankruptcy will not make a Federal Student Loan Go Away

Obviously, there is a great necessity to fund the costs of education as students, upon graduation, are making it a practice to consolidate debt in order to manage their payments. Not only that, federal student loan delinquencies are obligations that cannot be discharged by bankruptcy, thereby making consolidation all that more important with respect to repayment.

Before You Decide

So, if you are considering consolidation, look at your reason for the decision. If you consolidate several loans, you will probably lose any discounts you may now enjoy on the interest of certain loans or cancellation benefits. Plus, consolidation, although it reduces your payment, lengthens the time you will be paying on your loan, so you will, no doubt, pay more in interest and payments. If you can handle your current payments, you may be better off not to consolidate. However, if you can barely manage to meet your monthly obligation, then, of course, consolidation is a positive way to make it easier for you to repay your loans.

School loan consolidation allows you to combine the student loans you owe into one convenient loan payment. Therefore, you are freed up from making several payments monthly as you only have to worry about one payment amount.

Look at What Benefits you Might Forfeit if you Consolidate your Loans

While choosing this type of repayment sounds more hassle-free, you still might lose some benefits you currently enjoy by consolidating the payments on your college loans. For example, if the interest was discounted for one or more of the original loans, or you were given cancellation benefits, consolidating your loans into one payment may cause you to lose some of these advantages.

Look at How Much More Money you May Pay if you Consolidate

Also, take into consideration that consolidation may actually increase your overall cost for repayment even if the monthly payment is reduced and, thus, easier to pay. That’s because a loan consolidation will provide you with a longer time (up to 30 years) to pay back what you owe. However, because you will be repaying your loan for a lengthier time period, you will also remit more in the way of interest and payments. Therefore, in some instances, you can greatly increase the overall amount that you pay back. In fact, in some cases, you may pay back twice what you currently owe for your unconsolidated debt. So, if you are considering a student loan consolidation, you should first review how much more you may be spending in the long run.

The Benefit of a Student Loan Consolidation

If you discover that paying back your unconsolidated loans is a lot less expensive, then paying one seemingly convenient payment each month may not be so convenient after all. However, if you are finding it simply too difficult to make your monthly payments or are struggling financially, then consolidation can make it easier for you to manage your monthly cash flow.

Take a Look at the Advantages and Drawbacks very Carefully

Be advised that once you opt to combine all your student loans into one loan amount, those debts are considered paid, so you can’t make any alterations. Therefore, before you consolidate, consider the advantages and drawbacks of consolidation very carefully.

Student loan consolidation is all fine and good with respect to making debt repayment for student loans more manageable. What’s even better though is finding a student loan forgiveness program that will further reduce the amount you are obligated to pay.

Debt Forgiveness Programs for Teachers

For example, if you are a teacher with a sizable student loan debt, a good part of that amount can be forgiven and erased through a forgiveness program for teacher student loans. Teachers who work in their profession for five years straight are eligible for repayment of an FFEL (Federal Family Education Loan) or Direct Loan in the amount of $5,000. In addition, if you are a science or math teacher working in a special education program in a secondary institution, you are eligible to receive $17,500 in forgiveness compensation to repay your loan. The idea behind providing forgiveness for student loans is to encourage students to go into occupations that can be hard to staff.

Sign up with the Peace Corps

If you choose to volunteer after college too, you can qualify for student loan forgiveness through several charitable organizations. For example, if you join the Peace Corps, the organization will reduce your loan debt by 15% per year of volunteer service until which point 70 percent of the beginning balance owed has been repaid. Americorps and VISTA each offer a forgiveness program too.

Programs are Offered for Nurses, Law Enforcement Officers, and Military Personnel Too

So, if you want to reduce your loan debt and raise your FICO score at the same time, you might want to look into the various student loan forgiveness programs that are providing remuneration in this regard. Other programs exist for nurses, law enforcement officers, and military personnel. More information can be obtained through your college’s financial aid office.