How Common Are Student Loan Debt Problems?
Nationally, the total amount of student loan debt now exceeds credit card debt. Usually, it has been just the opposite. Historically, student loans were directly from the government and carried a very low-interest rate. It wasn’t a bad to finance part of an education. Over the years, schools realized that this was a great way to get students to pay for increasingly expensive education so they encouraged students to take out loans.
Unfortunately, a number of things happened along the way. First, these loans started being issued directly by banks. This caused the interest rate to go up. These loans were not nearly such a good deal. Second, students started to use these loans to pay for their entire education, sometimes including living expenses in addition to tuition. This caused the amount of debt to increase. Third, the cost of tuition went up as schools provided better and better accommodations in an effort to attract students. Fourth, a number of “for profit” schools, mostly trade schools, sprang up which promised high graduation rates and jobs with high salaries upon graduation. In many instances, this never happened.
As a result, the student loan situation mushroomed and has become quite a problem.
To make matters worse, many, if not most, of these loans are guaranteed by the federal government. This means that if someone doesn’t pay, the government will make good on that loan and chase the student. You and I, through the government, have guaranteed this debt which represents about 1/3 of the total federal budget for any given year. OUCH!
In the bankruptcy context, student loans are non-dischargeable with only a few, very narrow, exceptions. This leaves the student with loans that will never go away, and are accelerating at a high interest rate. If the student has no ability to pay these loans, and many time the just don’t, you and I, through the government, have to make good on these loans. This is a very real problem for students that can’t pay and for a country that really can’t afford it either!
What Are Some Remedies Available to People Facing Student Loan Debt?
In the bankruptcy context, there aren’t many! You can file an action against the student loan lender and ask that your loan be discharged on the grounds of undue hardship, but the test is pretty tough to meet. You have to show that you cannot maintain a minimal standard of living if forced to repay the loan, that this state of affairs is likely to persist for a significant period of time, and you have to show that you made a good faith effort to repay the loans.
The action necessary to prove this is called an adversary proceeding, which is like filing a lawsuit against the lender within the bankruptcy; it ultimately will include a trial. An attorney should handle any trial in a federal bankruptcy court, but if a person is trying to meet the 3-pronged test showing extreme hardship, how can they hire a lawyer? That’s a problem, and another reason why it’s very difficult to deal with student loans in the context of a bankruptcy.
Another alternative is to just disappear, work a job that does not pay wages, or just leave the country. However, these are poor solution in that they really don’t resolve the situation, it simply entails running from it.
A third type of possible solutions is I call administrative solutions. Here, a borrower will look at the type of loan and see if they can do certain kinds of service, or work in certain kinds of jobs, and see their loan amount voluntarily reduced by the lender, or if the federal government will give them credit towards paying off the loan.
My niece, for example, has student loans and she got a job teaching at a school that was considered underprivileged. She found out that in addition to getting a salary, she gets credit toward her student loan. The problem with that is, you have to look at each person’s situation one-on-one and look at their job and the type of service they can render. For example, you can get credit on a student loan if you go into VISTA for a while, which is the equivalent of the Peace Corps, but each person has to look at it one-on-one to determine what if any administrative solutions that might be available for them.
Can a Co-Signer Get off a Student Loan if the File for Bankruptcy?
If a student gets a student loan, and the parents co-sign or guarantee it, the parents are on the hook if their child doesn’t pay. Almost any parent should be very reluctant to guarantee a student loan because you don’t know if they’ll graduate or how much they’ll make when they get out. There is just no way of knowing.
For more information on Student Loan Debts, a initial consultation is your next best step. Get the information and legal answers you’re seeking by calling (818) 992-1940 today.
