On behalf of William Bible at Law Office of W. Thomas Bible, Jr.
In the past, college seemed like an investment that was a sure thing. If you went to college, you likely got a higher paying job that gave you the means to start a family, buy a house and pursue your piece of the American dream. Recently, with the economic decline and the dearth of job opportunities for graduates, what once seemed like a ticket to a better life now seems like a poor investment to many.
A recent survey by Wells Fargo asked 1,414 young adults between the ages of 22 and 32 what they would do if they had $10,000. As more than half of them financed their college education through student loans, many said that they would use the money to pay down their student loans. About a third said that they regret their decision to go to college at all.
It is a scary thought that student loan debt now exceeds credit card debt in the United States. As of 2011, there was $1 trillion of outstanding student loan debt compared to $798 billion in credit card debt. According to the New York Federal Reserve, students are finding it difficult to repay this debt. Borrowers who are more than 90 days late on payments have jumped from 8.5 percent in 2011 to 11.7 percent today.
Bankruptcy as a solution
At first glance, it seems that bankruptcy would not be much of a solution to student loan debt. Since the nineties, federal student loans have been nondischargeable in bankruptcy.
Although private held student loans are still technically dischargeable in bankruptcy, in reality it is very difficult to obtain a discharge, as the borrower must show that repaying the student loan imposes an “undue hardship.” In order to prove this in court, the borrower must show that he or she made efforts to repay the loan; that he or she cannot maintain a basic standard of living if forced to repay the loan; and that his or her burdensome financial situation is likely to continue indefinitely for the loan’s repayment period.
It is especially difficult to prove that the borrower’s financial situation will persist for the length of the student loan’s repayment period. As a result, bankruptcy courts reject almost all requests to discharge private student loans.
How bankruptcy can help
Although bankruptcy seems like it would not be able to help, that is often not the case. Bankruptcy can help student loan borrowers by eliminating the obligation to pay many other types of debt such as credit cards and medical bills. In doing so, bankruptcy allows borrowers to apply more of their income towards paying down their student loans.
If you are struggling with student loans, contact an experienced bankruptcy attorney, as bankruptcy is not for everyone. An attorney can advise you of your situation, inform you of your debt relief options and recommend a course of action that would be right for your situation.