Although they're not secured by a home, vehicle or other valuable asset, student loans are governed by a different set of rules relative to other forms of unsecured debt. Whereas credit card debts can be forgiven during the bankruptcy process, student loans must be paid in full almost without exception. As a former student suffering through a temporary financial rough patch, you may be able to negotiate an installment plan for the repayment of the remainder of your student loan balances. However, your lender is under no obligation to grant such a request. To work out such a plan, you'll need to prove that your income stream has been interrupted or severely curtailed.
After years of underemployment, your crushing burden of student debt may push you into bankruptcy. The bankruptcy process may provide you with some financial breathing room by forgiving the bulk of your unsecured debts, including any outstanding medical bills, personal loans and credit card bills. In theory, this should free up sufficient capital for you to resume paying back your student lenders in a timely fashion.
You'll only be able to secure the discharge of your student loans in bankruptcy by claiming an "undue hardship." In legal terms, this signifies that you have become unable to make your monthly student debt payments and anticipate being unable to do so for the foreseeable future. This is generally due to reduced work capabilities caused by a permanent physical disability or mental health issue. Your bankruptcy judge may also grant an "undue hardship" designation after determining that you have reached your "lifetime earnings ceiling." In other words, your judge must determine that you have reached an age at which you can't reasonably expect to earn more from your current occupation and may be unable to switch to a more lucrative career.
If you're unable to continue making timely student loan payments but aren't willing or able to declare bankruptcy, your lenders may choose to garnish your wages on a weekly basis. In certain circumstances, they may also be able to appropriate your annual tax refunds. If your loan was underwritten by your state's government, its issuer may seize the full amount of each successive state tax refund to which you're entitled until the loan has been paid in full. Likewise, lenders of federally-underwritten loans may seize your federal tax refund. Your lenders must notify you of the appropriation in writing.