Student Loan Debt Options

California Student Loan Debt Options 

For people in debt right now, things just got a lot worse. Notices have gone out to student debtors across the US that the moratorium has expired and can’t be extended thanks to the debt ceiling agreement. Payments have resumed since October 2023 and there are many unlucky people that simply can’t pay another bill right now. If you are considering your California student loan debt options, there is a lot to untangle. This article will focus on how you can (or can try) to discharge your student loans through bankruptcy, however there are some other good options I have listed below the article that you may want to consider if bankruptcy is not a consideration or of interest to you.

 How do you start the process? 

Both A new and easier path and more options have just become available for Californians to get relief from student loan debts. If you file for a Chapter 7 or Chapter 13 bankruptcy, your attorney can help you to file an adversary case against your student loan lender under Rule 7003 and then you write a formal statement and submit it to AUSA (Assistant United States Attorney ). AUSA will discuss your case with the Department of Education (DOE) and will decide whether you are eligible for a partial or full discharge of your student debt. Of course, you can’t expect any guarantees that they will agree that you should receive any discharge but it’s worth considering if you are already planning a bankruptcy.  The formula they are going to use in order to determine whether you are eligible to discharge any debt is broken into 6 sections.

Section 1: Personal information 

This includes assessing your personal information such as your residence and the structure of your household including your dependents and spouses, which can have a big influence on your financial situation. AUSA will also scrutinize critical loan details, including your outstanding loan balance, current repayment status, educational history, and employment situation.

Section 2: Income & Expenses

Household Gross Income is a critical factor, taking into account all income sources within the household without exceptions proven by recent tax returns and pay advice. Monthly expenses are assessed using IRS national standards for various categories and your expenses fall below these standards, no further investigation is required, and the debtor is allowed the full standard amount. If expenses exceed these IRS standards, the debtor can provide an explanation for the AUSA to consider when determining allowances.

Section 3: Ability to Pay in the Future

Presumed reasons for eligibility:

  • If you are 65 years old or older
  • You have been paying the loans for the last 10 years
  • You didn’t finish the education in which the debt was incurred
  • You have a disability or chronic illness that inhibits you from working
  • You have been unemployed 5 out of the last 10 years

Considerations for eligibility:

  • You got the loans for a degree but didn’t complete the degree
  • You don’t currently have a job
  • You are employed but not working in the field you got the degree or education in
  • Any other circumstances that would inhibit your ability to pay the loans back

Section 4: Previous Repayment Efforts 

Here you will be judged on how well you made payments in the past in good faith. However the good news is that all the time during the Covid moratorium will be not considered so you’re off the hook for those years.  They will look at factors like whether you made payments on loans, applied for deferment or forbearance, applied for IDR (Income Driven Repayment Plan) or applied for consolidation of the loans. They will also consider your past efforts to communicate to servicer or collection agencies, talk to DOE about repayment options or look for assistance from a third party.  The final consideration is what kind of effort you put into getting a job, making more money, minimizing your expenses and how you handle your finances in general.


Section 5: Assets 

The five major assets AUSA will consider are:

  1. Real Estate
  2. Motor Vehicles
  3. Retirement Accounts
  4. Interest in Businesses
  5. Anticipated Tax Refunds

AUSA doesn’t put a lot of importance on assets that can’t be easily turned into cash nor do they focus on assets that you need to maintain a basic standard of living.


We understand many people will be under a lot of stress to include another bill in their monthly budget with inflation still high, housing and rent prices absolutely insane while food, gas and other staples are going to the moon in synchronicity. Consider your California Student Loan Debt Options carefully and now is the time to make a move to either get on a plan to repay or include it in your bankruptcy if you are already considering filing for bankruptcy. Get a free consultation in Riverside county from Christopher Hewitt on how to get started. Putting it off will just accrue interest and some of these programs may change or end.


Other Great Options to Pay Off Student Debt 

Fresh Start Plan: Available until August 28, 2024, it allows borrowers to remedy default status by contacting servicers. It’s an opportunity to escape default without questions, but the process might have long wait times. It also allows enrollment in Income-Driven Repayment (IDR) and suggests consulting a lawyer for payment plan advice.

The New SAVE PLAN: Borrowers must contact the servicer to be placed into an IDR. Borrowers might hesitate to make payments, but no negative reporting or default occurs, although interest accrues. It aligns with the potential for one-time forgiveness under the Biden Administration, up to $125k.

FFEL Consolidation and Income-Driven Plans: A one-time adjustment to count time toward forgiveness and immediate forgiveness in some cases, with no application required. The Department of Education (DOE) is actively recalculating, and more forgiveness is expected by the end of December, especially for those in and out of IDR.

Nine Repayment Plans: These include four balance-based and five income-driven options under the Higher Education Act (HEA). They are available if you meet the eligibility criteria and include provisions for loan forgiveness. Enrollees must recertify income annually, and they apply exclusively to federal student loans.

Public Service Loan Forgiveness (PSLF): A subset of income-driven loan forgiveness that allows DOE certification based on tax returns, though it may not capture dependents or changing locations. The IDR system introduces the SAVE plan, while REPAYE has two phases, with potential shorter forgiveness timelines.

PSLF “Buyback” Program: In effect from July 1, 2024, it permits participants to buy back time spent in forbearance or deferment to accumulate PSLF-qualifying employment months. Payments are calculated under IDR standards, applicable for direct loans, and require 120 months of qualifying employment.


Frequently Asked Questions: Debt Consolidation in California
How does debt consolidation affect credit scores?

Initially, it might cause a slight dip due to credit inquiries. However, consistent payments can improve your credit score over time.

What is the difference between debt consolidation and debt settlement?

Debt consolidation involves taking a new loan to pay off debts, while debt settlement is negotiating to pay less than you owe. Settlement can negatively impact your credit score.

What are secured vs. unsecured debt consolidation loans?

Secured loans require collateral (like a house or car), usually with lower interest rates. Unsecured loans don't require collateral but typically have higher rates.

Is debt consolidation right for me?

It depends on your total debt, interest rates, credit score, and payment capability. It's suitable if you can pay off your debt within five years and secure a lower interest rate than your current debts.

Should I consider long-term financial planning?

Yes, debt consolidation should be part of a broader financial strategy including budgeting, cutting expenses, and building an emergency fund.

How do Chapter 7 and Chapter 13 bankruptcies in California differ?

Chapter 7 involves liquidating assets to pay off debts, while Chapter 13 allows debt restructuring over a set period, usually three to five years.

Can my spouse's bank account be garnished for my debt?

Bankruptcy laws offer protections against such actions, but specifics depend on individual cases and state laws.

How can I learn more about my options?

Consulting a California bankruptcy attorney can provide clarity. Firms like The Law Offices of Christopher Hewitt offer free consultations to explore debt relief paths.

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