For years, low interest, federally funded, student loans were a way that people could help finance an education. Over the years, these loans became funded by private banks and the interest rates started to rise. Further, student loans became a larger and larger portion of the way people paid for higher education.
Student loans are big business. In the last few years, the total amount of student loan debt exceeds the total amount of credit card debt in this country. According to the Federal Reserve Bank of New York, student loan debt totals approximately 1.2 trillion dollars nationwide while credit card debt totals about 800 billion dollars. The default rate on credit cards is usually 3% to 4% while the default rate on student loans is approximately 13%. This could become a national problem because these loans are guaranteed by the federal government.
Student loans are non-dischargeable in bankruptcy. In years past, they were dischargeable if they were a certain number of years old. This is not currently the law. Again, student loans are generally non-dischargeable in bankruptcy.
The only exception to a student loan not discharging in a bankruptcy is upon a showing of “undue hardship”. Most, but not all, courts use what is called the Brunner test. This comes frm a case entitled Brunner v. New York State Higher Educ. Servs. Corp., 831 F. 2d 395 (2d Cir. 1987). This requires a showing that 1) the debtor cannot maintain, based on current income and expenses, a “minimal” standard of living for the debtor and the debtor’s dependents if forced to repay the student loans; 2) this state of affairs is likely to persist for a significant period of time; 3) the debtor has made good faith efforts to repay the loans.
This test can be difficult to meet and Bankruptcy Courts are typically reluctant to make a finding of undue hardship and thus have the student loan discharged. This issue is made even more difficult by the fact that there must be a trial to prove undue hardship. The burden of proof is upon the borrower. Obviously, people who do not have the money to pay student loans certainly do not have money to hire an attorney to have the Court to make a finding of undue hardship at trial.
Most of the solutions dealing with student loans are happening outside of the Bankruptcy Courts.
There are a number of repayment options. Usually, a loan is paid with a fixed amount over 10 years. However, there are options for graduated repayment or extended repayment, sometimes up to a period of over 25 years. There are also options that allow for income contingent repayments or payments that are based upon what you earn. These are options that are worked out with each lender.
There are also administrative discharge and forgiveness options. For example, if someone is totally and permanently disabled, they may be able to apply for a disability discharge of the loan. Again, this is outside of a bankruptcy proceeding. Some borrowers may be eligible for a discharge of some loans if their school falsely certified eligibility to receive a loan based upon their ability to benefit from the training.
Borrowers who are a teachers and are teaching full time in a low income school may be able to have a portion of their debt subsidized or forgiven. The same may be true for persons serving in the Peace Corps, National Guard, VISTA, or other associations.
There are a number of administrative remedies to deal with student loan debt. However, every individual needs to explore and pursue each option separately .
There are other issues to consider when dealing with student loans. For example, a debt to a school, absent a signed promissory note, might not even be a student loan. Or a bankruptcy filing to discharge other debt might make it possible for a person to pay their student loan. These are all issues that must be taken into consideration when analyzing a person’s overall financial condition and the specific role that a student loan plays in that analysis.
Student Loan Debt
Nationally, the total amount of student loan debt now exceeds credit card debt. Usually, it has been just the opposite. Learn more about Student Loan Debts in California and help yourself or any loved one plan their education and future well.
