Student Loan Offset – The Hardship Reduction

by L. Jed Berliner, Western & Central Massachusetts Consumer Lawyer

October 27, 2012

You’ve been slapped with a notice of a student loan offset.  It can be reduced. 

 The offset means that your tax refund or Social Security benefits will be used to pay a federal student loan.  Your bankruptcy lawyer already told you that you can’t qualify for a hardship discharge because you have a modest standard of living.  (Yeah, a bankruptcy hardship discharge is that tough.) 

Here’s some help – and I hope my colleagues won’t yell too loudly at me for straying from a strict bankruptcy topic.  You can ask for a full or partial “hardship reduction” of the student loan offset.  Your expenses must be less than the standards used by the IRS to see if you can afford to repay any of your debt.  Both the Department of Education and the bankruptcy Means Test use the same standards. 

The DOE responded to an inquiry from the wonderful folks at the National Consumer Law Center (a great resource for All Things Consumer) and said so:

“We use the cost of’living standards published annually by the Internal Revenue Service to determine baseline allowable expenses for housing, transportation, etc. (These standards can be found at the IRS.gov website.)  We also consider the borrower’s circumstances and may make reasonable modifications to the baseline standards accordingly.” National Consumer Law Center, Student Loan Law (4th ed. 2010), 135.

Oddly enough, these expense standards are not unusually harsh.

Let’s be clear.  This does not make the loan go away – you need to explore the special DOE programs for reduced payments (even down to zero) which will lead to a discharge down the road.  But it allows you to SURVIVE, and that is A Good Thing.

If you’ve gotten this far in trouble, you really REALLY need to explore an affordable way out.  You’ve played Ostrich. You’re learning that Denial is more than just a river in Egypt.  Time to ‘fess up, pick yourself up, and Take Care Of Business.

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L. Jed Berliner practices exclusively in consumer bankruptcy, foreclosure defense, and related consumer protection litigation such as credit card defenses and suing debt collectors. He established his Springfield, MA practice in 1988. Attorney Berliner is a regular and active contributor to the Bankruptcy Law Network, the Bankruptcy Roundtable, and the National Association of Consumer Bankruptcy Attorneys, three specialized consumer bankruptcy forums on the Internet, and is an informal mentor to regional practitioners. He is recognized by his peers as an expert in consumer bankruptcy issues. He thoroughly enjoys being rated "excellent" in his client surveys.

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Last modified: October 25, 2012