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.
Article Resources:
(1) http://money.cnn.com/2018/06/05/pf/college/student-loan-stats/index.html
(2) https://www.shieldslaw.net/Blog/2015/April/White-House-Offering-Hope-For-Student-Loan-Debto.aspx
(3) https://law.justia.com/codes/us/2012/title-11/chapter-5/subchapter-ii/section-523/
https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancellation/death
