Part IV: Good Faith Efforts to Repay your Student Loans
In assessing what courts call the “good faith” standard, the Department of Education will focus on objective criteria reflecting the debtor’s reasonable efforts to earn income and manage his/her expenses. A debtor will not be disqualified based on past non-payment if other evidence of good faith exists. They will review the debtor’s payment history.
The Department of Education will look to see if the debtor has contrived a hardship for the purpose of getting their student loans dismissed. Examples of good faith include: (1) making payments (2) applying for deferment or forbearance (3) applying for income based repayment options (4) applying for federal consolidation loans (5) responding to outreach from a servicer or collector (6) discussing payment options, forbearance and deferment options, or loan consolidation with the Department of Education; (7) engaging a third party they believed would assist them in managing their student loan debt and/or (8) Debtor’s efforts to obtain employment to maximize income and minimize their expenses.
Acceptable explanations, or evidence for not enrolling in an income-based repayment plan include: (1) the debtor was denied or discouraged from using income-based repayment and instead relied on an option like forbearance, or deferment; (2) the debtor was provided inaccurate or incomplete information about the merits of an income based repayment plan; (3) debtor believed that an income based repayment program would not have improved their financial situation; (4) debtor was unaware that an income based repayment was an option; or (5) debtor was concerned with the potential tax consequences of loan forgiveness at the conclusion of an income based repayment program. Our next blog will address how the debtor’s assets play a role in dischargeability of student loans.
