ELFI is monitoring the Coronavirus (COVID-19) outbreak and following guidance from state and federal agencies. If you have been impacted by the Coronavirus, our Customer Care Center is available to help you.
×
TAGS
Private Student Loans
Student Loan Refinancing
Student Loans

Are Refinanced Student Loans Dischargeable?

May 29, 2020

If you have refinanced your student loans in the past, you may be wondering whether your refinanced loans can be discharged. The short answer is yes, but only under specific circumstances of which most individuals do not meet the criteria, and if you do meet the criteria, it can still be a very difficult process. Read on to see what circumstances allow for refinanced student loans to be discharged, and what you can do to ease the burden of private student loan debt if you don’t meet the criteria for discharge.

 

What is Student Loan Discharge?

To begin, it’s important to understand what the term “discharge” means in regard to student loans. Often used interchangeably with student loan forgiveness, these terms actually apply to different situations:

  • Student loan forgiveness is usually based on the borrower working in a particular occupation for a period of time, such as within the Public Service Loan Forgiveness (PSLF) Program. For private student loans, loan forgiveness is essentially non-existent.
  • Student loan discharge is usually based on the borrower’s inability to repay the debt or the borrower not being responsible for the debt because of fraud.

 

Discharging Refinanced Student Loans

Refinanced student loans are essentially new loans taken out with a private lender – so when talking about whether refinanced student loans are dischargeable, you should look at them like private student loans. Here are some situations in which private student loans may be dischargeable. Keep in mind that private student loans are very rarely discharged and that this shouldn’t be considered a realistic option.

 

Disability

While federal student loans are dischargeable for individuals who are “totally and permanently” disabled, private student loans aren’t necessarily subject to this rule. However, some private lenders do offer loan discharge in situations of disability. If this applies to you, contact your lender for more information – many lenders review requests for financial assistance on a case-by-case basis and will show compassion toward the situation.

 

Bankruptcy

If you’re seeking to have your refinanced student loans discharged, filing for bankruptcy could possibly be a last-resort option – however, it is very difficult and unlikely to happen because student loans aren’t categorized as dischargeable debt. According to the U.S. Bankruptcy Code, in order to have your federal or private student loans discharged through bankruptcy, you must prove undue financial hardship on yourself and your dependents, which is a difficult and expensive process that will most likely require a separate lawsuit and an attorney. This process is so difficult that most people who file for bankruptcy do not attempt to include their student loans. If you are unable to prove undue hardship, you will be obligated to continue repaying your student loans, and if you’re currently having your wages garnished due to default, they will continue to be garnished.

 

There are also some pretty substantial drawbacks to filing bankruptcy that could have a lasting impact on your life.

 

Drawbacks of Filing for Bankruptcy

It Could Hurt Your Credit Score

If you currently have a good credit score (700 or higher), filing for bankruptcy is likely to bring it down substantially, making it more difficult to obtain financing for a mortgage, car loan, or personal loan.

 

It Will Show on Your Credit Report for up to 10 Years

As if a ding to your credit score isn’t bad enough, filing for bankruptcy will show on your credit report for up to 10 years, which can not only affect your ability to obtain financing, but also could be seen by potential employers and affect your hireability or be seen by landlords and affect your ability to find rental housing.

 

Your Cosigners will be Liable for your Debts

If you have any cosigners on your loans, they will become responsible for your debts that you no longer owe.

 

Loss of Property and Real Estate

Occasionally, not all personal property and real estate will fall under exemption when bankruptcy is filed. This means that the bankruptcy court may seize your property and sell it for the purpose of paying your debts to creditors.

 

Denial of Tax Refunds

As a result of filing bankruptcy, you may be denied federal, state or local tax refunds.

 

Ways to Ease Private Student Loan Debt

If the burden of your refinanced student loans appear to be too much for you to handle, there are several actions you can take to help ease the pressure.

 

Take Stock of Your Finances

While this may go unsaid, making changes to your financial habits and budget may help you set aside the money to afford your monthly payments. Take stock of your income, savings and how you are currently spending your money. Perhaps you also have federal student loans that you could consolidate or refinance as well, or maybe you have a few subscriptions that you don’t need and can cancel. Making small changes to your financial habits can make a big impact.

 

Contact Your Lender

While you may not qualify to have your refinanced student loans discharged, you may find it useful to contact your lender to learn about the options available to you. Many lenders will offer a temporary deferment or forbearance in times of economic or financial hardship. Being transparent with your servicer may allow you to avoid missed payments, which can have pretty significant impacts on your credit score.

 

Consider Refinancing Student Loans Again

Did you know there’s no limit to how many times you can refinance your loans? While you may have already refinanced your student loans once, refinancing them again may be an option to consider, depending on whether your financial situation has changed or if interest rates have dropped. If your credit score improves or you get a raise at work, you may be able to qualify for a lower interest rate. Even if you haven’t seen a big change in your financial status, you may be able to extend your loan term and lower your monthly payments. Check out our Student Loan Refinancing Calculator to examine how changing the length of your loan term may help you save on monthly payments.*

 

Ask for Employer Assistance in Student Loan Repayment

In an effort to be competitive in recruiting and provide relief to employees, many employers are offering (or considering) student loan repayment assistance as an added benefit to employees. If your employer isn’t currently offering this benefit, consider asking if there’s potential for it to be added. Now is actually a great time to make this proposal, as a recent provision within the Coronavirus Aid, Relief, and Economic Security (CARES) Act allows employers to contribute up to $5,250 tax-free annually to their employees’ student loans until December 31, 2020. Send your HR department a well-written letter or have a formal meeting to discuss this opportunity.

 

Conclusion

You may find that getting your refinanced student loans or private student loans discharged isn’t any easy process. However, there are actions you can take to ease the financial burden that your student loans are causing. Visit the ELFI blog for more helpful tips and resources for paying off your student loan debt.

 


 

*Subject to credit approval. Terms and conditions apply.

 

Notice About Third Party Websites: Education Loan Finance by SouthEast Bank is not responsible for and has no control over the subject matter, content, information, or graphics of the websites that have links here. The portal and news features are being provided by an outside source – the bank is not responsible for the content. Please contact us with any concerns or comments.

Leave a Reply

Your email address will not be published. Required fields are marked *

2020-07-13
How to Save for Retirement While Making Student Loan Payments

If you have student loans, you know how your debt can affect your ability to pursue your other financial goals, especially saving for retirement.    According to a recent survey by TIAA, 84% of responding adults said that their student loans negatively impacted the amount they were able to save for retirement. For those who aren’t saving for retirement at all, 26% said their student loan balances were why they couldn’t afford to do so.    However, putting off saving for your retirement is a costly mistake. It’s important to balance saving for your future with paying down student loan debt now. If you’re struggling to manage both priorities, here’s how to save for retirement while keeping up with your loan payments.  

Why you need to save for retirement now

When it comes to saving for retirement, the earlier you begin saving, the better. Compound interest and the power of annual returns can help your money grow over time. The longer you wait to start saving for retirement, the more you’ll have to invest your own money to have enough saved to retire comfortably.   For example, let’s say Jen begins saving for retirement at the age of 25. She contributes $250 per month into her retirement account, and her average annual return is 9%. By the time Jen reaches the age of 67, she’s contributed just $126,000 into the account, but her retirement account is worth $1,406,746.   By contrast, Jen’s friend Stephanie puts off saving for retirement until she pays off her student loans and doesn’t start contributing to her retirement until she’s 35. She starts putting $500 per month toward her retirement fund — double what Jen contributes each month. Like Jen, Stephanie earns an average annual return of 9%, but by the age of 67, her retirement fund is worth only $1,108,257. Stephanie contributed $192,000 of her own money — nearly $70,000 more than Jen — but her retirement account is worth approximately $300,000 less than Jen’s because Stephanie got a later start.   Chart showing the impact of saving for retirement earlier  

Retirement savings options

If you’re not sure how to save for retirement, here are some popular retirement plans.   

401(k) 

A 401(k) plan is an employer-sponsored retirement plan, meaning it’s a benefit offered through your job. With a 401(k), you invest a portion of your pre-tax salary in the investments you choose. Your contributions and the earnings are not taxed until you withdraw from the account.  

401(3)b 

401(3)b plans are very similar to 401(k) plans, but they’re offered to employees of non-profit organizations, churches, public schools, and universities. You make contributions to your retirement plan on a pre-tax basis, and your contributions and earnings aren’t taxed until you make withdrawals.  

IRAs

Another great option is to open an Individual Retirement Account (IRA) on your own. There are two options: a Traditional IRA and a Roth IRA.  

Traditional IRA

Anyone can contribute to a Traditional IRA, regardless of income. With an IRA, your earnings can grow tax-deferred, meaning you only pay taxes on your gains when you make withdrawals in retirement. Your contributions may be tax-deductible depending on your income level and if you have access to an employer-sponsored plan.  

Roth IRA

If you meet the income restrictions, a Roth IRA may be a useful option. With a Roth IRA, you make contributions with after-tax dollars. Why is that a good thing? While your contributions aren’t tax-deductible, your earnings and withdrawals are tax-free. And, you can take out the money you contribute to your Roth IRA — but not your earnings — before you reach retirement age without paying any penalties, so your Roth IRA can double as an emergency fund in a pinch.  

How to save for retirement while paying student loans

Finding a balance between saving for retirement and paying down student loan debt can be tricky, but it can be done if you follow these three steps:  

1. Make the minimum payments on all of your student loans

It’s important to stay current on all of your debt to maintain and protect your credit score and prevent racking up costly late fees. Keep making all of the required minimum payments on your federal and private student loans to avoid falling behind and entering student loan default.*  

2. If your employer offers matching contributions, contribute enough to earn the full match

If you have access to an employer-sponsored retirement plan like a 401(k) or 403(b) and your employer offers matching contributions, contribute enough to your account to qualify for the full match. Otherwise, you’ll lose out on free money that is a key part of your compensation package. Over time, skipping the match could cost you thousands of dollars.   For example, let’s say you make $40,000 per year, and your employer will match 100% of your contributions, up to 5% of your salary. That means if you contribute $2,000 per year to your retirement plan — 5% of your salary — your employer will match your contribution, giving you an additional $2,000 per year toward your retirement fund.   If you didn’t take advantage of the match while you were with that employer for five years, you’d miss out on $10,000. But the long-term consequences are even worse. If that money earned an average 9% annual return, in 30 years, that $10,000 would be worth over $147,000. That’s why it’s so important to take advantage of employer matching contributions if they’re available to you.   If your employer doesn’t offer a match, or if you don’t have access to an employer-sponsored plan, contribute to a Traditional IRA or Roth IRA  instead.  

3. Tackle your high-interest student loan debt

If you have extra money left over each month, put it toward high-interest student loan debt, meaning loans with an interest rate of over 5%. You can also consider student loan refinancing to lower your interest rate and reduce your monthly payment.   By refinancing your student loans, you can save money and free up more money in your monthly budget to save for retirement. Use the student loan refinance calculator to see how much you can save.*  

The bottom line 

When it comes to saving for retirement while paying student loans, you should develop a balanced strategy. Aim to both save for retirement and pay down your student loans at the same time. By taking advantage of employer contributions and tackling high-interest debt, you can improve your finances and build a secure future.  
  *Subject to credit approval. Terms and conditions apply.    Notice About Third Party Websites: Education Loan Finance by SouthEast Bank is not responsible for and has no control over the subject matter, content, information, or graphics of the websites that have links here. The portal and news features are being provided by an outside source – the bank is not responsible for the content. Please contact us with any concerns or comments.
Millennial reading news about student loans in coffee shop.
2020-07-10
This Week in Student Loans: July 10, 2020

Please note: Education Loan Finance does not endorse or take positions on any political matters that are mentioned. Our weekly summary is for informational purposes only and is solely intended to bring relevant news to our readers.

  This week in student loans:
US Capitol

GOP Concerns Over Costs Could Limit Student Loan Relief In Next Stimulus

GOP Senate leaders are showing increasing concern about the costs of additional economic relief, particularly when it comes to student loan relief, as they weigh a second stimulus bill.

Source: Forbes

 

State Senate Chambers

Democrats Fail to Override Trump Veto on Student Loan Policy

This Friday, House Democrats were unable to override the Trump Administration's veto on a proposal to reverse the Education Department's strict policy on loan forgiveness for students misled by for-profit colleges. The House voted 238-173 in support of the override measure, coming up short of the two-thirds majority needed to send it to the Senate.

Source: ABC News

 

question mark

Study Finds Gen Z Borrowers Are Unaware of COVID-19 Student Loan Relief Programs

While the CARES Act allowed those with federal student loans to pause payments until September, a recent survey from Student Debt Crisis shows that Gen Z borrowers, in particular, were the least aware of the relief program.  

Source: CNBC

 

note saying pay off debt

Author Shares Her Big 'Wake Up Call' That Led Her to Pay Off $81,00 in Student Debt

35-year-old Melanie Lockert, the author of "Dear Debt," shared with CNBS the story of how she was able to pay off $81,000 in student loan debt over 9 years, with her big wake up call coming five years into repayment.  

Source: CNBC

    That wraps things up for this week! Follow us on FacebookInstagramTwitter, or LinkedIn for more news about student loans, refinancing, and achieving financial freedom.  
 

Notice About Third Party Websites: Education Loan Finance by SouthEast Bank is not responsible for and has no control over the subject matter, content, information, or graphics of the websites that have links here. The portal and news features are being provided by an outside source – the bank is not responsible for the content. Please contact us with any concerns or comments.

picture of different loan term lengths
2020-07-08
Dash Through the Debt: How a Shorter Student Loan Term Adds Up

If you’re like most college graduates, you’re sick of your student loans. If you want to get rid of your debt once and for all, refinancing your loans and opting for a shorter student loan term is a smart strategy. You can secure a lower rate and pay off your loans years ahead of schedule while saving thousands.    Here’s what you need to know about shortening your loan term, as well as how much shortening your student loan term could save you.   

How long does the average graduate take to repay their student loans? 

When you graduate from college, you likely expect to pay off your student loans quickly. However, life often gets in the way of your plans, even if you make a good salary.    While the
Standard Repayment Plan for federal student loans is ten years, many students extend their repayment terms with income-driven repayment plans, forbearance or deferment periods, or by missing payments altogether. According to the One Wisconsin Institute, the average length of repayment for graduates with bachelor’s degrees is 19.7 years. If you have graduate student loans, the average repayment period is even longer.    With such a longer repayment term, you’ll pay thousands of dollars in interest charges on top of what you initially borrowed, adding to your loan's total cost. And, carrying such a heavy financial burden for decades can force you to put off other goals, like buying a house, starting a business, or even getting married.   

How to get a shorter student loan term

When you take out a student loan, you sign a loan agreement or promissory note where you promise to pay the loan back according to set repayment terms. The agreement will outline the loan’s interest rate, payments, and loan term.    Many borrowers don’t realize that you’re not stuck with those terms forever. If you’re unhappy with your current loan’s repayment terms or your finances improve, there is a way to change them: student loan refinancing.*    When you refinance your debt, you apply for a loan from a lender like Education Loan Finance for the amount of your total existing student loan debt. If you have both federal and private student loans, you can combine them so you’ll have just one loan to manage and one monthly payment to remember.*    The new loan will have different terms than your old ones, including the interest rate and monthly payment. When you apply for the loan, you can choose your own loan term that works for your goals and budget. For example, if you currently have a ten-year loan term, you can select a five or seven-year loan if you'd prefer a shorter term.   

Benefits of a shorter student loan term

Instead of making payments for 20 years or more, it’s a good idea to select a shorter loan term, if you can afford it. Opting for a shorter student loan term has many advantages:   

1. You can get a lower interest rate

When you have a long loan term, lenders consider you to be a riskier borrower and they charge you a higher interest rate. You’ll have a lower monthly payment, but the longer loan term will cost you more money in interest charges over time.    By contrast, lenders reserve their lowest interest rates for credit-worthy borrowers who choose the shortest loan terms. If you want the best possible rate, opting for a shorter loan term will allow you to save money.    You’re probably wondering, “How much can I save by shortening my loan term?” Let’s look at an example.    Pretend you had $30,000 in student loans with a ten-year loan term at 5% interest. By the end of your repayment term, you would repay a total of $38,184; interest charges would cost you $8,184.    If you refinanced your loans and chose a five-year loan and qualified for a 3.19% interest rate, you’d repay just $32,496 over the life of your loan. By refinancing your debt and selecting a shorter loan term, you’d save $5,688.   

Original Loan

Balance: $30,000 Interest Rate: 5% Loan Term: 10 Years Minimum Payment: $318 Total Interest: $8,184 Total Repaid: $38,184  

Refinanced Loan

Balance: $30,000 Interest Rate: 3.19% Minimum Payment: $542 Total Interest: $2,496 Total Repaid: $32,496

2. You’ll pay off your debt earlier 

When you choose a shorter loan term, you’ll be able to pay off your debt years ahead of schedule. Not only will you save a significant amount of money in interest charges, but you’ll also have the psychological benefit of not having to worry about debt any longer. If your student loan balance was causing you stress, that’s a significant advantage, and a huge weight off your shoulders.   

3. You’ll free up cash flow

Once you’ve paid off your student loans, you’ll free up extra cash flow. You’ll no longer have to make your monthly loan payment, so you can instead direct that money toward other goals, such as saving for retirement, boosting your emergency fund, or buying a home. If you use the above example, you’d have $542 per month you could use to fund your financial goals.    To put that in perspective, let’s say you paid off your loans by the time you turned 27. After that, you invested the $542 you were paying toward your student loans into your retirement nest egg. If you contributed $542 every month into your retirement fund and earned an 8% annual return, on average, your account would be worth over $1.8 million by the time you reached the age of 67.   

The bottom line

While extending your loan term may seem like a good idea to get a lower monthly payment, that can be a costly mistake. You’ll have to pay a higher interest rate and, over time, the longer loan term will cause you to pay back far more in interest charges.    Instead, consider refinancing your loans and selecting a shorter student loan term. You’ll be debt-free sooner, and you may save a substantial amount of money.    To find out how much you can save, use the student loan refinance calculator.*  
  *Subject to credit approval. Terms and conditions apply.   Notice About Third Party Websites: Education Loan Finance by SouthEast Bank is not responsible for and has no control over the subject matter, content, information, or graphics of the websites that have links here. The portal and news features are being provided by an outside source – the bank is not responsible for the content. Please contact us with any concerns or comments.