American Education Services, a major student lender, provides federal loans from the Stafford and Perkins loan programs as well as a variety of private loan products. If you attended a pricey four-year college during the past decade, it's possible that you secured some of your financial aid through AES.
These days, many recent graduates find themselves struggling to handle their student loan debts. While most AES products carry reasonable interest rates of between 3 and 7 percent, the tepid job market has made it difficult for many folks to stay current on their payments. If your outstanding AES loans are single-handedly darkening your financial future, you may be considering taking drastic action to ensure that you remain solvent.
Unfortunately, recent changes to the United States Bankruptcy Code make it exceedingly difficult to discharge AES loans during the course of a typical bankruptcy. With few exceptions, bankruptcy judges treat student loans as secured credit facilities that can't be wiped out by the bankruptcy process. When you file for bankruptcy, you'll need to repay any student loans on which you currently owe a balance.
While your attorney may be able to work out a repayment plan with your lenders during the normal course of a Chapter 13 bankruptcy, it's unlikely that you'll see a meaningful reduction in your principal balances. In fact, any repayment plan that spreads out your payments over a longer period of time may end up costing you more thanks to the relentless accrual of interest charges.
Your prospects won't be much better under the terms of a Chapter 7 bankruptcy filing. The court-appointed trustee responsible for seizing and distributing your assets among your creditors will be sure to set aside resources sufficient to repay your student loans. In other words, your Chapter 7 liquidation plan will prioritize these credit facilities over unsecured loans like outstanding credit card bills and medical bills.
In certain exceptional cases, it may be possible to discharge or reduce your student loan debts. If you can prove to your presiding judge that you are permanently unable to repay your student loans, they may forgive some or all of them. This is known as a condition of "undue hardship" and can arise for several reasons. If you've been permanently injured and receive disability payments from the government or are nearing retirement and have dim future job prospects, you may be able to claim undue hardship.