Student loans are one of the hardest debts to shake, because bankruptcy laws make it difficult to discharge them. However, having kids puts you in a better position to receive loan forgiveness or a bankruptcy discharge than most other debtors. Just having kids does not automatically mean loan forgiveness. You must meet other tests to determine if paying back student loans presents an undue hardship.
Lenders are unlikely to forgive student loans for staying at home with kids unless it thinks it cannot collect on them. Thus, your most likely path is through a bankruptcy court. To discharge student loans, you must show that paying them back presents an undue hardship. You could argue that student loan payments do not allow you to meet a minimum standard of living for your dependents. You must also show that repayments would cause an undue hardship for most of the repayment period and that you made an effort to pay back the loans—you cannot take care of kids just to avoid the debt.
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Bankruptcy courts rarely discharge student loans unless you are physically unable to work. Thus, you should prepare to pay back the loan. If you have federal student loans, you can plead with the lender for a deferment until you can return to work or find someone to take care of your kids. Your lender may even restructure your loan to make monthly payments smaller in the short-term, such as extending the life of the loan.
Federal Forgiveness Programs
Several nonprofit organizations offer student loan repayment as a perk for working or volunteering with them. You can forgive up to 30 percent of your Perkins loans if you become a teacher in a area that serves low-income families. Many law schools forgive a portion of your loans if you work with a nonprofit or other organization that serves the public good.
If you want bankruptcy protection, you probably will need a lawyer's help to prove that staying at home with dependents is an undue hardship. Alternatively, you could include the loans in a Chapter 13 repayment plan. This allows repayment based on your disposable income, which may give you enough time to save money and meet regular payments once you complete the plan. If you take out federal student loans after July 1, 2014, the government will cancel the debt if you cannot pay it back within 20 years.