Category: Student Loans

Student Loan debt is on the rise.  There is over a trillion dollars in student loan debt out there.  This has surpassed credit card debt and is trumped only be mortgage in terms of consumer debt.

This is arguably the next bubble, so what is Congress going to do about this?

There are two big pieces of legislation floating around the Hill right now.

The Student Loan Fairness Act

This bill deals primarily with federal loans.  The bill would cap interest at 3.4% on federal loans and would forgive up to $45,000.00 in student loan debt should the borrower make ten years of timely payments.  Assuming you took out debt prior to the enactment of the act your balance a the end of the act would be $0.00

This should help a bit after the fact but won’t do much to help defaulted borrowers get back on track.

The Private Student Loan Bankruptcy Fairness Act

The other piece of legislation deals more closely with bankruptcy, which is what we at Bruce C. Truesdale PC deal in.  Though the details are vague at best it appears that Senator Dick Durbin is proposing that private student loans be treated as dischargable in bankruptcy cases the same way your credit cards or any other unsecured debt you may have has been.

I find this to be a far more helpful piece of legislation on the whole, namely because the federal loans above have built in programs such as income based repayment to help out borrowers that have defaulted or are about to default, whereas private student loans do not offer any of those programs and have some really troublesome collection practices.

Now to the meet of the issue, will either of these pass?

Who knows.

Congress seems to be in agreement that the student loan debt crisis is in fact a crisis.  The student loan debt problem is not just a giant bill that will at some point come due, it is also a drag on the economy.  Student loan bills are stopping young people burdened with debt from buying houses, getting married, and having kids.  These three things are big drivers of the economy, particularly housing. On top of it all student loans forgiveness is politically popular and that could really help out borrowers in distress and hoping for action on the part of Congress.

Saddle by student loans and other debts?  Give our office a call at 732-302-9600 or fill out our online consultation form and we will call you.

Just when you thought the student loan mess couldn’t get worse, it does.

Sequestration is going to mean more than just furloughs for government and civilian employees and longer lines at the airport.  It is going to mean bigger student loan bills for those who wish to attend college.

Under the sequestration deal Federal Pell grants will go untouched but the federal work study program is poised to lose 49 million dollars from its program.  Supplemental education grants stand to be cut back by 37 million dollars.  And those long wait times when you are calling Direct Loans for help are going to get longer as employees are cut back to meet the new budget requirements.

This all adds up to higher student loan debts for low income students and the very real prospect that they will be priced out of college completely.

Those who decide to go will be saddled with increasingly high student loan debt that they will spend a lifetime paying instead of buying homes and starting families, both of which are essential the economy growing again at some point in the future.

But there is some light at the end of the tunnel for those who decide to borrow and make a meaningful effort to repay their loans.  The fifth bill that would make private student loan debt dischargeable in bankruptcy has been brought forward in Congress and is on its way to the Judiciary Committee. The  survival of this bill is looking more likely than it ever has before as the nation faces the staggering student loan debt and its effect on the economy up close and personal.

Here are Bruce C. Truesdale PC we will be keeping a close eye on this one and our fingers crossed for all the current and future cash strapped students out there.

Interested in how we can help you with your student loans?  Give us a call at 732-302-9600 or fill out our online consultation form and we will call you.

The Student Loan Debt Series: Part 1
Where We Are Right Now

Most of us have them.  Most of us try really hard to pay them.  Most of us don’t understand our rights when it comes to them.

No, I am not talking about credit cards or medical bills.  I am talking about student loans.  Student Loans recently beat out credit cards as the largest portion of consumer debt out there, topping 1 trillion dollars.

That is trillion, with a T.

But while the amount of student loan debt Americans are taking on may be distressingly high, what is more distressing is that student loans are incredibly difficult to deal with when the borrower is struggling financially.

Student Loans are only dischargable in bankruptcy in cases of extreme hardship.  In New Jersey, the borrower has to quote a Chapter 7 trustee at a recent conference “in an iron lung.”  Some other states have slightly more generous standards for student loan borrowers in bankruptcy, but here in New Jersey a bankruptcy is probably not going to help you.

The federal government doesn’t offer much in the way of assistance either.  Federal student loan borrowers can defer their student loans but only in cases of unemployment or pursuing other degrees and these deferment are limited in time.  Once the deferments are used up debtors can go into a forbearance but during this time the interest will toll and debtors are limited to under two years of forbearance.  Neither of these options reduces the debt owed or solves the lack of affordability problem.

The government response has been to create extended repayment options, income based payments, and income contingent payment options.  This means that a borrower will pay less each month but will be paying the debt for twenty to twenty five years.  So if the debtor starts out making not much money and this is the only way he or she can pay for the time being there are some options.  However, remember that if the borrower’s income goes up so will that payment and often income based repayment can be problematic for borrower’s living in high cost areas like New Jersey and New York.  These income based models are not going to take into account the fact that rent in the Garden State can top $1000.00 a month.

As far as general hardship waivers, the federal government only offers a true hardship waiver in cases of severe disability.  Borrowers who are permanently disabled can have student loans waived but must remember that if they take this option they will be ineligible for more federal student loans down the road.

The other thing to remember about the above two options is that they are available for federal loans ONLY.  These are not options for those private student loans taken out by some borrowers when the rates were low.

Adding insult to injury in the student loan world are the punishments for default.  Defaulting on a student loan can be devastating to your financial existence.  A defaulted student loan can drop a credit score up to 100 points meaning you will pay higher rates on everything else you can purchase.  On top of that defaulted student loans are subject to harsh penalty fees and increased interest rates on the loans that can make a $20,000 student loan double and become a $40,000 student loan.

And the loan companies aren’t going to be the only ones chasing student loan borrowers anymore.  Recently, three major universities, Yale, Penn, & George Washington University, sued their students that defaulted on student loans!

So there is a problem and I know what you are thinking… the bankruptcy lawyer just told me there is nothing I can do and that nobody can help me.  That is not the case.  There are options out there and Congress appears to be finally taking notice and attempting to propose solutions.

This is just the first in a series of blogs I am going to be doing on student loans.  Next week we will review the bills floating around Congress, including a possible change to the bankruptcy code, that could help student loan borrowers with private debt.

Stay tuned!

 

Interested in how bankruptcy can help you with your finances?  Give our office a call at 732-302-9600 or fill out our online consultation form and we will call you!

It was announced today that United State’s student loan debt is over a trillion dollars.

This is staggering.

Worse news for consumers of student loans is that if you default you are in real trouble.  Student loan debt is virtually non-dischargable and  the collection practices are coming under scrutiny as “something that would make a mafia collector blush”.  These are companies that can charge extortion level collection fees and government lenders can garnish and levy upon funds that no other creditor out there can.

Basically, you have to pay these loans unless Congress takes a very drastic position and actually adopts one of the many student loan forgiveness programs that have been presented to it over the years.   So you ask why is a personal bankruptcy attorney telling you that you can’t be helped…well that is because you can.

I may not be able to rid you of your student loans but I can help you with one of the side effects of the student loan problem.  The San Francisco Chronicle cited “Taking Time To Pay Off Consumer Debts” as one of the troublesome side effects of high student loan debt.  Consumers are carrying higher balances and paying higher interest rates on credit cards because they have to pay the student loans first.  We can solve that problem.

In a personal bankruptcy case we can discharge credit card debt, personal loans, and lines of credit you may have accumulated in college so that you can afford to pay your student loans.  I know that this may not feel like much comfort when you are strapped for cash thanks to your student loans but believe me it can help.

Have more questions about how we can help you with your financial issues?  Call us at 732-302-9600 or fill out 5 minute online consultation and we will call you.