According to an article by CNN, "...Student debt
now totals about $1.5 trillion,"(1), surpassing the totals owed for credit cards and auto loans.
Not surprisingly, with tuitions at an all-time high, paying off student
loan debt has become a major stressor among today's young adults graduating
college. Living the American dream is just beyond the reach of many; this
debt is not only delaying home purchasing, and starting a retirement fund,
but has had a direct impact on starting families as well as set in motion
a downward trend in consumerism.
Students who are looking for relief from this staggering amount of debt
have very few options to choose from in bankruptcy court. They must show
undue hardship as determined by the court. Proving that you can't maintain a minimal
standard of living and that your circumstances aren't likely to change
is a high standard to meet for most people.
Adding insult to injury, this surge in student loan debts continue to accrue
penalties and interest, causing many post-grad students to fall behind
in their payments, ultimately affecting their credit scores and buying
power. Even with a college degree, many graduating students struggle to
find good-paying jobs to cover this debt. This vicious cycle is not easily broken,
Surprisingly, the largest sector of the economy shouldering these student
loan debts are not the actual graduating seniors, but rather their retired(ing)
parents, now in their 60's. Having taken loans to help pay their children's
tuition, many now find their retirement checks being garnished --a very
unfortunate set of circumstances for those trying to make it on a fixed income.
Bankruptcy law only offers limited relief
Since 2005, nearly all student loans are excepted from discharge in bankruptcy
cases, except in very limited circumstance. The Bankruptcy Code identifies
certain debts that are not dischargeable in bankruptcy, "......unless excepting such debt from discharge under this paragraph would impose
an undue hardship on the debtor and the debtor's dependents..."
11 U.S.C. § 523. (2)(3)
Prior to 2005, the only student loans excepted from discharge were those "...made, insured or guaranteed by a governmental unit..." or made by an organization that receives government funding.
11 U.S.C. § 523(a)(8) (2004). (4)
While bankruptcy may not be high on your list of options in the foreseeable
future, there are other actions that should be considered.The Law Offices of James C. Shields can help you navigate the intricacies of student loan debt relief and
explore alternative actions.
Six ways to relieve debt-related stress:
1. Ask your lender for a repayment plan based on your income--there are 3 types
- An Income-Based Repayment Plan (IBR)
- An Income-Contingent Repayment Plan (ICR)
- Pay-As-You-Earn Repayment Plan
There are significant differences amongst these programs that consider
your monthly income, then cap your payment at a fixed percentage of that
income. The downside? Your payments will extend as far out as a mortgage,
possibly as long as 25 years. Additionally, you will need to report your
income annually to remain compliant with the program's guidelines
and so your repayment amount can be adjusted accordingly.
2. Temporary Respite
By allowing you to reduce or eliminate student loan payments for a fixed
period of time, "student loan deferments" or a student loan
forbearance" may be the right option to destress your student loan
debt and get you back on firm footing.
3. Is Public Service Right for You?
If you believe your skills and education will help you get into a public
service position, and your student loans are "Federal Direct Student
Loans" you may be qualified to have some or all of your loans discharged.
What is the upside/downside?
You must make 100% of your student loan payments on time for
10 years-- then, virtually 15 years of loan repayment is forgiven.
4. Prepay Your interest
Your loan accrues interest; however, that interest is not "capitalized"
immediately. By prepaying your interest, you prevent it from compounding,
causing the start of the vicious
"payment v. interest" cycle.
5. What happens when you do land a job paying $10,000 more?
Kudos! You should step up your repayment game by sending in as many extra
payments as possible. Stay on a tight repayment plan and get that debt
paid off -- the attorneys at the James C. Shields Law Firm can help you
map out your plan to living debt-free.
6. Relief from partner's student loans
Interestingly, you can ethically and legally unburden yourself of your
spouses' student loan debt if a
Death Discharge is in place. However, the White House is working on relaxing bankruptcy
laws as a means to offer relief through discharge, under Chapter 13 bankruptcy.
Right now the White House is considering what steps can be taken to put
student loan debt on par with other forms of lending. (2) Taking out a
term policy to cover the outstanding portion of your debts is a very viable
option, as it does not require a physical.
For more information on what debt-relief options are available to you,
contact the Law firm of James C Shields for a free case evaluation and let their trained professionals map out
your road to successful debt management.