Options, limits in addressing student loan debt
Wednesday, 03 October 2012 12:35

Current student loan debt totals $870 billion

by David Portney

    Since the economic crisis took full effect in 2008, consumer debtors have made great strides in paying down their unsecured credit card debts from a high of $917 billion to a current total credit card debt of $693 billion. 
    However, as a result of the ease with which student loans have been made available, the latest balance owed is now larger than the total amount owed on credit cards. 
    The current outstanding student loan balances have risen to $870 billion, which is even higher than what consumers owe in car loans ($730 billion).  

    It is not completely clear what the implications of this growing debt will be, as student loans approach the $1 trillion mark this year.  However, it does not take a rocket scientist to realize that high student debt, coupled with a weak job market (especially for younger workers) has the potential to add pressure to an economy that is already having difficulties. 
    If you have more than one student loan you may want to consider consolidating your loans to help lower your monthly payment. There are few options available to achieve this which depend largely on whether your loans are federal or private. If federal visit the Department of Education’s loan consolidation site for details.
    If your loans are private, your options are more limited. You have nothing to lose by calling your lenders, explaining your situation, and, well, begging for mercy. Some may be willing to restructure your loans or provide for a period of interest only payments or some other temporary reprieve. 
    For the most part, student loans are non-dischargeable in a Chapter 7 or Chapter 13 bankruptcy. In other words, even after a bankruptcy has been filed and completed, student loans will still have to be paid.
    The one exception is a motion filed for a Hardship Discharge. In order to qualify for such a discharge, you must be able to demonstrate, based on current income and expenses, that you cannot maintain a “minimal” standard of living if forced to pay back student loans. 
    Additionally you must show that circumstances exist – for example, a catastrophic medical condition – which will continue to exist and you will not be able to maintain a minimal standard of living for the foreseeable future.
    Finally, you must show that you have made a good faith effort to repay your loans before you found yourself in a position of hardship. Even if you do not qualify for a hardship discharge, a bankruptcy may help your situation because you will be able to discharge other debts thereby freeing up income that can be used to pay student loans.
    Please be advised that the information above is general in nature and should not be considered a substitute for personal legal advice which will take into consideration all relevant information relating to your individual situation.
•David Portney is a partner in the Baltimore law firm Grossbart, Portney and Rosenberg, P.A.