Many people facing overwhelming student debt consider filing for Chapter 7 or Chapter 13 bankruptcy. However, there is no automatic student loan debt discharge in New York.
The New York Attorney General’s Office states that the courts may consider student loans during bankruptcy proceedings. However, borrowers must prove that repaying the loan will make it too difficult to care for themselves and their dependents in the future.
Income-driven repayment options
An income-driven repayment plan may reduce federal student loan payments. The Federal Student Aid office provides information on the four IDR plans available.
- Revised Pay As You Earn (REPAYE): Payments are approximately 10% of discretionary income spread out over 12 months. REPAYE tends to be better for single borrowers.
- Pay As You Earn (PAYE): Similar to REPAYE, borrowers make 12 payments of about 10% of discretionary income. PAYE may be the right choice for married couples who both have an income.
- Income-Based Repayment (IBR): Payments are approximately 15% of discretionary income, divided by 12.
- Income-Contingent Repayment (ICR Plan): Parents who borrow for their child may benefit from the ICR plan if standard payments are more than 20% of discretionary income.
There are also available tax credits for those who are repaying student loans. Both current students and those still paying loans after graduating or leaving school may be eligible for these credits.
Consider consolidating other debt
Some students consider filing for bankruptcy due to overwhelming credit card debt in addition to student loans. People in this situation may be eligible for a fixed-rate personal loan to help pay down lines of credit with higher interest rates.