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Dear Liz: Our son is a schoolteacher and he does as many extra-duty things as he is able to do to maximize his income. He is still paying on his student loan debt from earning his master's degree. He has had to put it on deferral a few times.

When his wife couldn't find a job after her position was outsourced, she went back to school for her bachelor's degree. She graduated with honors and a degree in digital technology -- plus about $100,000 in student loans. She has occasionally worked through a temp agency and has gained very valuable experience, but the work is scarce. In addition, she has been suffering for several years from severe depression. She is receiving treatment for it and is slowly improving but still has not been able to find employment, and her unemployment benefits have just run out, adding to her stress.

They feel totally overwhelmed and need some relief. We've made some of their student loan payments and are helping with the mortgage on their underwater home, which our son has been trying without success to refinance. The loan was predicated on two full-time incomes, which obviously they no longer have. We don't have unlimited funds but try to help as much as possible.

How do we help them get out of this horrible situation? I'm wondering if there could be any relief if they filed bankruptcy and pleaded extreme hardship, which they are certainly under?

Answer: Your son and his wife may be stressed, but they almost certainly don't qualify for the rarely granted "undue hardship" exception that would allow them to erase their student loans in bankruptcy court.

"Undue hardship discharges generally not only require the borrower to be currently unable to repay the debt while maintaining a minimal standard of living for their dependents, but also that the situation is likely to persist for most of the life of the loan," said Mark Kantrowitz, publisher of, a network of sites about planning and paying for college. "Given that they are both able-bodied, they are unlikely to succeed in getting an undue hardship discharge."

Image: Liz Weston

Liz Weston

Continuing to rely on deferrals or forbearance isn't a great option, either, since interest on the debt continues to accrue.

The situation is far from hopeless, however. The couple can choose an income-based plan for their federal loans that would limit payments to 15% of their discretionary income, as defined by federal rules (or 10% if they qualify under the Pay As You Earn program). In most cases, payments on the income-based repayment plan are less than 10% of a borrower's gross income, said Kantrowitz said. Sometimes the payments are set at zero if the borrower's income is extremely low.

If your son is a public schoolteacher, he would qualify for forgiveness of any remaining loan balance after 10 years of payments under the Public Service Loan Forgiveness Program. Otherwise, he and his wife (assuming she works in the private sector) would qualify for forgiveness after 25 years.

Private student loans are far less flexible and typically don't qualify for forgiveness. Private loans likely make up most, if not all, of your daughter-in-law's debt, since federal loan limits wouldn't have allowed her to borrow six figures. If the private loans have high rates, the couple may be able to refinance with a credit union or community bank. You can read "Building a better student loan" for more details.

Depending on their credit scores, they may need a co-signer for refinancing. Think carefully before you agree to this, because one missed payment could trash your own credit scores. Several missed payments could lead collectors to come after you for full payment.

Keep in mind that they, not you, made the decision to take on so much debt. You don't mention how much your son borrowed, but borrowing $100,000 for an undergraduate degree is excessive by any measure. Generally, students shouldn't borrow more in total than they expect to make the first year out of school, and few jobs pay $100,000 to newly minted graduates.

Rather than help with mortgage payments, guide them to the revised federal Home Affordable Refinance Program, which is finally helping significant numbers of underwater homeowners. A HUD-approved housing counselor can guide them, and Zillow's Mortgage Marketplace offers a calculator and quotes from lenders willing to make HARP loans.

If they can't get a refinance that would make their home affordable, they need to think seriously about letting it go—via short sale or foreclosure—and finding a place they can manage on their current income.

You need to think carefully about how much help you give this couple, as much as you love them. Yes, they're struggling, but they have a working lifetime ahead of them. You, on the other hand, are probably closing in on retirement age. If your financial gifts to them are keeping you from saving adequately for your own future, you need to stop being so generous.

Liz Weston is the Web's most-read personal-finance writer. She is the author of several books, most recently "The 10 Commandments of Money: Survive and Thrive in the New Economy" (find it on Bing). Weston's award-winning columns appear every Monday and Thursday, exclusively on MSN Money. Join the conversation and send in your financial questions on Liz Weston's Facebook fan page.

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