June 27, 2017

What can I do about Student Loans I can’t Repay?

What should you do when student loans put a squeeze on you?

Many of my clients owe tens of thousands of dollars in student loans, either for their own education or their children’s, and this debt can be a real and crushing financial burden.

The total outstanding student loan balance is $1.08 trillion. According to Forbes, 11.5% of it is 90+ days delinquent or in default, a number on the rise consistently since 2003. The delinquency rate on student loans is higher than credit cards, mortgages and auto loans.

According to the Project on Student Debt, in 2012 71% of all students graduating from four-year colleges had student
loan debt:
• At public colleges, average debt was $25,550 — 25% higher than in 2008, when the average was $20,450.
• At private nonprofit colleges, average debt was $32,300 — 15% higher than in 2008, when the average was $28,200.
• At for-profit colleges, average debt was $39,950 — 26% higher than in 2008, when the average was $31,800.

Can I get a hardship ruling and discharge student loans in bankruptcy?

Most people understand that student loans are generally not dischargeable in a bankruptcy case.  Section 523(a)(8) of the Bankruptcy Code provides that student loan debts (including private student loans) are not dischargeable in a bankruptcy case unless the debtor can show that repaying the debt would impose an undue hardship on the debtor and the debtor’s dependents.

If you’re deaf, blind, and missing all four limbs, you’ve got a 50/50 shot at proving undue hardship under this section.

Misleading information on discharging student loans

I continue to receive calls from student loan obligors looking for an attorney to file a bankruptcy case and pursue a discharge of their student loan obligations.  Each one of them has cited research that they’ve done on the Internet that leaves them with the misimpression that an attorney should be able to discharge their student loan debts easily and cheaply.  Suffice it to say that I’ve not taken on this representation.

Resources for those who struggle to pay their student loans

Here are several other posts I’ve written on student loans and bankruptcy. Generally speaking, if you are in financial hardship, you might consider filing for bankruptcy protection in order to allocate scarce dollars to the student loan debt that cannot be discharged.

For federal loan deferment, check the government’s Federal Student Aid website to see if you qualify. You can then download the form you need. For private loans, you’ll have to check with your servicer to see if you qualify.

Since you will have to pay your student loans at some point, a bankruptcy consultation with a qualified bankruptcy attorney can be extremely helpful.