Articles Posted in Student Loans

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Nearly three million Americans currently have student loan debt, with estimates of the total amount owed reaching as high as $1 trillion. Because of changes to federal bankruptcy law in 2005, student loan debt is not dischargeable in bankruptcy except in very limited circumstances, although a bill pending in Congress seeks to expand those circumstances. As students at Los Angeles-area colleges and universities are graduating and perhaps preparing for graduate school, and as high school seniors are pondering college in the fall, the state of student loan debt, and the options of student loan debtors, bear scrutiny.

Student Loans and Bankruptcy Law

Federal bankruptcy law specifically excepts student loans from discharge in bankruptcy, unless doing so would cause “undue hardship” for the debtor or the debtor’s family. 11 U.S.C. § 523(a)(8). Despite this, an increasing number of students are filing for bankruptcy protection when they find themselves unable to repay their student loans, according to a report by the Consumer Finance Protection Bureau (CFPB). “Private Student Loans Report” at 72 (CFPB, Jul. 19, 2012). By the end of 2011, nearly $1.5 billion in student loans, about 1.3% of the total, were involved in bankruptcy proceedings. Id. Continue reading

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Student loan debt is on the rise, much like the mortgage mess we are still dealing with as a nation.  In fact, student loan debt appears to have doubled since 2007, to an estimated 1.1 trillion dollars!  Twenty percent of families are presently burdened by a student loan, with an average balance owed of $26,682. Many owe far more.   This includes loans from such government lenders as famed Sallie Mae.

Some are just out of school and facing difficulty finding work, and remaining current with their large monthly student loan payments.  Others are faced with “negative equity” meaning instead of getting out of school and starting at “zero”, they owe far more than they are worth, sometimes by tens of thousands of dollars.  Prior to 1998, an individual those student loans were more than seven years old had the option of filing a Chapter 7 bankruptcy and discharging their entire student loan  balance.

Unfortunately, the law changed under President Clinton.   So, while a Chapter 7  bankruptcy  used to be a viable option for those individuals burdened with large student loan balances, bankruptcy law after 1998 no longer allows an individual to discharge his or her student loan debt by using a Chapter 7.   Instead, the only way to completely discharge student loan debt today is via a mechanism called a “hardship discharge”, which is almost impossible to qualify for.