Debtor’s Ability to Participate in an Income Based Repayment (IBR) plan does Not prevent a debtor from Obtaining a Hardship Discharge of Student Loan

Debtor’s Ability to Participate in an Income Based Repayment (IBR) plan does Not prevent a debtor from Obtaining a Hardship Discharge of Student Loan

A 58-year-old Debtor filed an adversary proceeding to discharge her student loans, which she had obtained in her mid-forties. She was trying to improve her job prospects by attending a local community college.

Debtor is liable for student loans both for her education and for Son’s undergraduate education. As of November 30, 2017, under the William D. Ford Direct Loan Program, she owes the United States $126,543.64 for student loans; interest accrues at a rate of $22.70 per day. She has made payments on those loans amounting to $527.68. As of November 30, 2017, under the Federal Stafford Loan Program, Debtor owes $4,422.98; interest accrues on that debt at a rate of $0.74 per day. She has made payments on that debt amounting to $42.00.  The Debtor consolidated her loans from the US-DOE several times. When she consolidated her loans all previous payments were credited to determine the new loan balance. Her total payments on loans to the US-DOE as stated above are based only on payments made after she consolidated her loans.

Debtor  has worked with the US-DOE and other defendants on different repayment options for her student loans. Payments on the loans were deferred while she was attending school. Since graduating, she has sought forbearances, deferments, and was placed on income based repayment “IBR” plans. An IBR plan allows a borrower to repay the student loan based on income. Based on a number of factors including which IBR plan the borrower selects, the borrower’s income, the poverty line where the borrower lives, and the loan amount, the U.S. Department of Education calculates a repayment amount. The repayment amount is recalculated each year. When the Debtor filed her bankruptcy case the amount she owed each month under her IBR plans was $0.00. Debtor was on separate IBR plans for loans from the US-DOE and other lenders.

At the time of trial if the Detbor were to enter into IBR plans, the amount owed each
month would be $0.00 to the US-DOE and $0.00 to Student Loans. Under her
circumstances it is unlikely that the amount owed each month under the IBR plans would be
more than $0.00 in the foreseeable future. The interest on the student loans amortizes each year and is added to the principal during the repayment period. This amortization likely will leave the Debtor with a significant amount of debt to be forgiven at the end of the IBR plan repayment periods if the student loan debt is not discharged in bankruptcy. The US-DOE projected in 2015 that to pay her student loans in full the Debtor would need to pay at least $1,147.40 per month for 137 months. She cannot make such a payment today. Based on her reasonably foreseeable circumstances it unlikely that the amount owed by the Debtor each month under an IBR plan will ever be more than zero dollars per month.

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