Still No End in Sight for Student Loan Debt

I am getting more and more phone calls and emails from prospective clients who tell me that they are considering bankruptcy, but the majority of their debt is student loan debt. I hate having to tell people that student loan debt is non-dischargeable, especially when I hear amounts that reach 6 figures.

There are some who are able to get their student loan debt discharged, but it’s a very tough process, and from what I’ve learned it’s impossible unless you are extremely disabled and unable to work again for the rest of your life. The fact that you’re unable to find a job, or a single mom raising a family, does not qualify as the sort of hardship required to obtain a debt discharge. If that were the case, the line to file these cases would be very long.

Ok, so student loans aren’t dischargeable in a bankruptcy, and you’re on the hook for them because you’re not permanently disabled. Now you have to determine what types of loans you have, which will tell you what rules they have to follow. If you’re “lucky” enough to have federal loans, you may be able to pay them back on an income based repayment plan. These plans can be very helpful, allowing you to pay what you can afford, and it may even be possible to have the remaining debt cancelled after 25 years of payments.

If you have private loans, though, all bets are off. Not only do private loans not have to follow the guidelines of income based repayment, but they also tend to have higher interest rates and very few borrower protections. The collection efforts for these loans tend to be very aggressive when there is a default.

If you are one of the many who are struggling with student loan debt, it’s important to consider the big picture. The majority of your debt may be in the form of student loans, but if you have other debt (credit cards, medical bills, deficiency judgment from a foreclosure or repossession) that is getting in the way of making your student loan payments, you may still want to consider talking to a bankruptcy attorney. Close to 2/3 of the bankruptcies I file are for people who have non-dischargeable student loan debt in addition to their unsecured, dischargeable debt. In these cases, filing bankruptcy frees up your disposable income and can allow you to afford to put a dent in student loans.

Contact Greenwald & Hammond if you’d like to set up a free consultation.

Submitted by:
Kerry Hammond, Esq.

Bankruptcy Attorney