Does the IRS Grant Hardship if a Student Loan Is Defaulted?
Attending a college or university is a great way for an individual to grow academically and socially. Unfortunately, the costs of a higher education grow steadily each day. To afford this education, many individuals take out student loans to cover the costs of tuition and housing. The goal is to pay back the loans following graduation. Sometimes circumstances change and individuals cannot afford to pay back the student loans and they go into default. Defaults are sent to the IRS for processing. The IRS does not grant hardship but other agencies will grant it for the right circumstances.
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IRS
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The IRS receives lists of all borrowers who are in default on their student loans. The IRS uses this information to take an individual's tax refund to offset the student loans owed. It does not recognize hardship as a reason for not repaying these loans. A borrower can challenge the offset if the individual is dead, the school owes the borrower money, a new repayment agreement has been reached or the borrower has filed for bankruptcy.
Deferment
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Another option for a borrower who has defaulted on his student loan due to hardship is to request a deferment. Deferments can be granted by the school or institution issuing the student loans. Deferments must be applied for and are generally granted when an individual experiences undue hardship. The length of time for a deferment requested because of undue hardship is typically three years. Deferments can also be granted for unemployment or continuing education at another institution.
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Student Loan Hardship Grant
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Another option is for the borrower to apply for a student loan hardship grant. A student loan hardship grant is offered to individuals from low income families who have a difficult time paying back student loans, while still maintaining a minimum standard of living. Grants are offered by individual schools and generally have different requirements, depending on the individuals applying. These grants do not have to be paid back by the borrower.
Bankruptcy
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Students loans can be discharged in bankruptcy proceedings. It has to be shown that repaying the student loan would be an undue hardship for an individual or his family. Bankruptcy courts use different tests to prove undue hardship. The most common test is whether the individual would be able to maintain a minimal standard of living if he were to make payments on his student loans and that these circumstances will continue to exist for the near future. In addition, the individual must have made a good faith effort in the past to repay the loans.
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References
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