Bankruptcy can help with student debt
Despite what you may have heard, the truly desperate can have their student loan debt forgiven in bankruptcy court. But it's not easy.
Whenever you read about the immense amount of outstanding student loan debt in this country, you invariably read that student loan debt cannot be discharged in bankruptcy court.
Well, that's not quite the case. A discharge of student loan can be done if your circumstances are sufficiently and demonstrably dire. You also have to prove to the court that there's no reason to hope that they'll get any better for the life of the loan, according to an excellent Ron Lieber story in The New York Times.
In other words, bad luck and hard times are your lot in life, and you must convince the judge of that fact.
It didn't used to be that way. Student loan debt was dischargeable in bankruptcy before the mid-1970s. Then Congress began gradually tightening the rules for federally guaranteed student loans, and it finally eliminated bankruptcy discharge for private student loans -- including those issued by banks -- in 2005. (FinAid.org has an interesting timeline of the changes here.)
"That essentially lumps student loan debt in with child support and criminal fines -- other types of debt that can't be discharged," Kayla Webley observed earlier this year on Time.
(While programs exist to forgive or reduce federal student loan payments, those options aren't available for students who took or take on private student loan debt. That's why people who are advocating a change in the bankruptcy laws are focusing on making private student loans dischargeable in bankruptcy.)
If you borrowed it, you have to repay it -- unless you can prove to the bankruptcy judge that your student loans are causing an "undue hardship" for you and your dependents. How do you make your case? (Post continues below.)
A federal website that explains ways to have federal student loan debt canceled, forgiven or discharged explains the bankruptcy courts' three-part test (and you have to meet each and every one of these):
If you are forced to repay the loan, you would not be able to maintain a minimal standard of living.
There is evidence that this hardship will continue for a significant portion of the loan repayment period.
You made good-faith efforts to repay the loan before filing bankruptcy (usually this means you have been in repayment for a minimum of five years).
Many judges have adopted a "certainty of hopelessness" test, Lieber writes, which requires them to believe that you truly have no hope of earning an adequate living now and for years to come.
These cases can drag on for years, and the government may fight you every step of the way. (A Palm Beach Post story this week, by the way, detailed how the feds have greatly increased the number of lawsuits they file against student loan defaulters.) The Times story focuses on a 31-year-old college grad, now legally blind, who first went to bankruptcy court six years ago. He's seeking the discharge of $89,000 in student loans.
The good news is, studies mentioned by the Times show that 39% or more of undue hardship applicants are successful in getting part or all of their student loan debt forgiven. Fewer than 1,000 people try it each year, the Times says.
What do you think? Should bankruptcy be restored as an option for those unable to repay their student loans -- either private loans or those guaranteed by the federal government? Should bankruptcy standards be relaxed to help the unfortunate?
Some don't think so, at least not for federal loans. Wrote one reader of the Times:
Many people are financially handicapped for life by no fault of their own. However, if you choose to take the risk inherent in taking out a loan, you do not fall within this group. You took a risk. You took someone else's money and agreed to pay it back with interest. Other taxpayers who did not take that money should not have to pay for you.
More on MSN Money:
- Grandma's new worry: Student debt
- Are universities unethical?
- 11 surprising student loan facts
- Student loans push up bankruptcies
- Student loans sink Mom and Dad
- Will I be able to pay back my student loans?
"Repay" not "replay"
Also, I am hearing many new graduates are essentially banking on the government setting up a program to forgive student debt without adverse consequences for the borrower student so that in the meantime, they make minimal payments and hope the rest of the balance will be forgiven in a few years. Any new legislation passed must take into account that at least some people may be planning to have their loans forgiven (even if their circumstances are not "hopeless") and the impact it would have on the rest of the economy.
They should allow the discharge of student debt, but.......
If you don't pay your car or home loan the lender takes it back.
They should apply the same rules to student debt.
If someone can't repay the loan, or wants the debt discharged in bankrupty, the lender should reposses the degree from that person, and make it a criminal offense to even put that degree on their resume.
A teacher can't teach without that degree, a doctor or nurse can't practice medicine without that degree, etc...
Don't want to pay the loan?, don't worry.... the world needs ditch diggers too.
We do remember that if mom and dad co-signed the loan, they will have to pay it back regardless of junior's bankruptcy?
And if M & D don't cosign, and junior can just take a bath in bankruptcy,why would a bank lend anything to someone who has no known source of repayment except that job Obama is holding for him? I can't think of a faster way to dry up sources for student loans than to make them dischargable in bankruptcy.
By helping send American manufacturing and factories to China, Romney helped to China's economy soar while America wilted into INSIGNIFICANCE.
Romney helped destroy America without even being president, so imagine the destruction to our economy if he is elected.
Romney will send more jobs to China to kill off the last remnants of the American middle class that Republicans have long declared war on.
The jobs that our young adults are supposed to be filling when they graduate are over in China, perhaps forever unless we write laws that bring those jobs home.
Not every ones student loans are that black and white. I believed I was scammed by DeVry meaning they wanted me to stay longer in school then I wanted to or even thought I needed too. My talent was lost when Devry asked me to take courses I still to this day don't believe I need to take a High school math? Really? So I walked.
Devry should fit the bill because not only did they not help me reach my goal but should of never allowed me to attend in the first place because I never passed the admittance test. So at what point do schools have to fit the bill for them just wanting to be greedy? They saw me as just a meal ticket and nothing more.
For that I don't feel I should have to pay the loan back Devry should for not coming thur for me when I needed them too. Deduction of my pay and not allowed to get my tax refund check should be criminal because I have become unable to provide for me and my family I count on my pay check to pay check, and my tax refund check I have a minor to care for and when they dip in my money that leads me more into financial hardship I have to live too I have a minor to raise on my own.
So for these reasons my loan should be forgiving and the school in my case should fit the bill and pay the student loan back that they took with no intension of ever helping me get my associates degree. Also Devry won't even allow me to go to another community college in my area because they refuse to fax all my transfer test scores to another school I wish so much to go to.
So I got screwed and Devry did not let me go to their school or anywhere else I wanted to attend a college. So I'm damned if I do and damned if I don't. I could not win for losing. The interest alone are killing me I can die today or ten years from now and never pay off my student loan so for me I truly believe my loans should be forgotten. The sooner the better so I can provide for myself and my family and start to live again. I can't live on what they leave for me to live on it is not human. I have bills to pay I have to live too! Stop this madness Obama can you? I want to live and I want my student loans dropped. I will never make more then I do this economy will be the same for the amount of time it will take me to repay so it needs to be dropped forgiven what ever you wish to call it asap.
YES! Now that would throw "the man" for a loop....and probably speed up the bankrupting of this close to ruined nation. Vote "against obama". Anyone but Obama! Seriously, how can it be that he is even considered an option at this point. Sorry MSN, but it's true.
Even on MSN sites when they post a poll the results go against Obama.
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