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Information about all aspects of finances affected by a serious health condition. Includes income sources such as work, investments, and private and government disability programs, and expenses such as medical bills, and how to deal with financial problems.
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Summary

If you are having difficulties paying your student loans, your health condition may help you:

  • Get a deferral of the amount due for up to 3 years.
  • Get a forbearance of the amount due.
  • Reduce your monthly payments.
  • Cancel the loan entirely.

Bankruptcy remains a possibility, though it is difficult to get rid of student loans in a bankruptcy. Again, your health condition may be helpful.

Before you take any action, speak with your doctor to find out how bleak he or she can paint your health situation â€" the stronger the case that you are unable to work and the more likely to die soon, the better. (Remember: this is for purposes of your student loans and does not necessarily reflect reality.)

Each of these subjects are discussed in the following.

NOTE: For more information, see the U.S. Department of Education website: www.ed.gov offsite linkor the National Consumer Law Center's website: www.StudentLoanBorrowerAssistance.org offsite link

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Deferral Of The Amount Due Under Your Student Loan

You may be able to receive a deferral of payment of a student loan for up to 3 years in the following circumstances:

1. You Are Disabled

Your lender may let you defer loan payments while you are on disability. However, even though your payments are deferred, your balance will continue to increase because interest will continue to accumulate.

For loans obtained before July 1, 1993: If you, your spouse, or one of your dependents is temporarily totally disabled because of sickness or injury, you can defer the payments on most of these loans for up to three years.

The condition must make you unable to hold a job for at least 60 days.

The deferral also applies if your spouse or dependent is sick or injured. In that case, you must be unable to hold a job because the person needs your caretaking for at least three months.

2. You enroll in a rehabilitation program for the disabled.

Payments are deferred until 6 months after the program ends.

3. You are unemployed.

You can get a deferment on most loans if you are unemployed but looking for work.

4. You are experiencing economic hardship.

You can defer payments on federal loans obtained after June 30, 1993 (though Perkins loans can be from any time period) for up to three years for economic hardship. If you take a few minutes to complete our worksheets, you will have an excellent place from which to start this process. (See Financial Planning.)

You are automatically entitled to this deferment if you receive public assistance, such Supplemental Security Income (SSI). To learn more, see Supplemental Security Income.

5. You enroll in school.

6. You become a member of the U.S. Military, the National Oceanic and Atmospheric Corps, or the U.S. Public Health Service.

Forbearance Of The Amount Due Under Your Student Loan

If you don't qualify for a deferral or cancellation, you may qualify for a forbearance. This is a period of time during which you won't have to make any payments.

You may qualify for a forbearance if you:

  • Teach or provide services to needy people.
  • Perform community service.
  • Work in the health care professions or law enforcement.

It's basically up to a lender to grant a forbearance.

Explain your financial and medical situation. Before the forbearance is approved, you may be sent some forms to complete requesting information on your income and expenses. If there is no inclusion for health condition, include it in your cover letter.

Note that during a forbearance, interest will still accumulate -- increasing your account balance.

You May Be Able To Reduce Your Monthly Student Loan Payments

Installment Plans If Your Loan Is In Default

If your loan is in default, you may be eligible to switch to an installment plan based on your ability to pay. Your lender will ask you to file a financial statement, which you can get at www.ed.gov/offices/OSFAP/DCS/forms/fs.pdf offsite link.

An installment plan might make sense if you expect to have a steady income and will be able to stick to the new repayment schedule.

Refinance Your Loan If It Is Not In Default

If your loan is not yet in default:

  • You may be able to refinance the loan which will extend your payments over a longer period of time, decreasing the amount of your monthly payments (but increasing the interest you pay over the course of the loan.)
  • You may be able to have payments capped based on your income. This is known as "Income Based Repayment" or "IBR."  
    • For most eligible borrowers, IBR loan payments will be less than 10 percent of their income. 
    • Payments can be even smaller for borrowers with low earnings. IBR will also forgive remaining debt, if any, after 25 years of qualifying payments.
    • To quality for IBR, you must have a level of debt relative to your income to qualify. You qualify if it would take more than 15 percent of whatever you earn above 150% of poverty level offsite link to pay off your loans on a standard 10-year payment plan

Explore Canceling Your Student Loan

In the following limited circumstances, you may be able to cancel your student loan. This means you no longer have to pay the loan. In some situations, you may only be able to get rid of a portion of the loan. 

  • If you become totally and permanently disabled.
    • The definition of "totally and permanently disabled" is that you "must be unable to work and earn money or go to school because of an illness or injury that is expected to continue indefinitely or result in death." If the holder of the loan determines that you meet this definition, your loan will be discharged.
    • You cannot be considered totally and permanently disabled on the basis of a condition that existed at the time you applied for the loan unless your condition substantially deteriorated later.
    • You can get the disability cancellation form at www.ed.gov/offices/OSFAP/DCS/forms/disable.pdf offsite link
  • You teach or provide services to needy people.
  • You work in the health care professions or law enforcement.
  • You perform public service. Under the Public Service Loan Forgiveness program, any principal and interest debt remaining after 10 years of full-time employment in public service iis waived if:
    • The borrower has made 120 payments as part of the Direct Loan program. Only payments made after October 1, 2007 count toward the 120 monthly payments. Borrowers may consolidate into Direct Lending in order to qualify for this loan forgiveness program starting July 1, 2008.
    • Public service jobs include, among other positions:
      • Emergency management 
      • Government (excluding time served as a member of Congress) 
      • Military service 
      • Public safety and law enforcement (police and fire)
      • Public health (including nurses, nurse practitioners, nurses in a clinical setting, and full-time professionals engaged in health care practitioner occupations and health care support occupations)
      • Public education 
      • Early childhood education (including licensed or regulated childcare, Head Start, and State-funded prekindergarten) 
      • Social work in a public child or family service agency
      • Public services for individuals with disabilities or the elderly 
      • Public interest legal services (including prosecutors, public defenders and legal advocacy on behalf of low-income communities at a nonprofit organization)
      • Public librarians 
      • School librarians and other school-based services 
      • Employees of tax exempt 501(c)(3) organizations. 
      • Full-time faculty at tribal colleges and universities.
      • Faculty teaching in high-need subject areas and shortage areas (including nurse faculty, foreign language faculty, and part-time faculty at community colleges).
    • In order to be considered to be employed full time,  you must work a minimum of 30 hours a week. 
    • Eligible loans include Federal Direct Stafford Loans (Subsidized and Unsubsidized), Federal Direct PLUS Loans, and Federal Direct Consolidation Loans. Borrowers in the Direct Loan program do not need to consolidate in order to qualify for loan forgiveness. Borrowers in the FFEL program will need to consolidate into Direct Loans. To obtain a federal direct consolidation loan, call the US Department of Education at 800.557.7392 (TDD 800.557.7395).

 

Bankruptcy And Your Student Loan

In theory, another possible solution to repaying student loans is a discharge in bankruptcy.

We say "in theory" because canceling a student loan in bankruptcy is very difficult. It even involves filing a separate court action in your bankruptcy proceeding.

For more information, contact a bankruptcy attorney. Also see Bankruptcy.

For More Information About What Can Be Done With Your Student Loan

For more information about handling student loans, contact the Department of Education's Ombudsman www.fsahelp.ed.gov offsite link or Tel. 877.557.2575