Recent Issues in Student Loan Debt
According to the Consumer Financial Protection Bureau, student loan debt has topped $1 trillion dollars in the United States. If you include the debt owed to private student loan companies the total debt reaches $1.2 trillion.
This report coincided with Congress’s inability to reach a deal before the July 1st deadline, to keep interest rates on federally backed student loans at 3.4%. Currently the interest on new government loans has doubled to 6.8%. Subsequently, the Senate has reached a tentative deal that would base future rates for student loans on the ten-year note plus an additional percentage, keeping the loans at a projected rate of 3.86 percent. Furthermore, graduate students could borrow at 5.4 percent and parents could borrow at 6.4 percent.
This may be good news for future borrows, but this doe not resolve massive amounts of student loan debt plaguing Americans.
The Senate has recently begun investigating so-called debt consolidation companies who have been employing deceptive practices to capitalize on the student loan crisis. These companies charge debtors an exorbitant amount of money claiming to reduce their student loan payments, when in fact these companies are just enrolling debtors into already available federal repayment programs without disclosing the information to the debtors.
Bankruptcy is not always an option for people dealing with high student loan debt. The current standard for discharge is that the debt places an “undue hardship” on the debtor. This standard sounds relatively simple; however, in actuality is a very high threshold, requiring nearly complete disability to achieve.
Even if you do not meet this standard there may still be some relief options that are available in bankruptcy. If a debtor has income, but not enough income to pay the large student loan payment, they may be able to file a Chapter 13 bankruptcy case. A Chapter 13 bankruptcy is a 3-5 year payment plan. While the Chapter 13 case will most likely not wipe out the student loan debt, the payment plan can usually lower the payment, making it more manageable for the debtor.
In addition, the bankruptcy will also wipe out any other unsecured debt the debtor may have, such as credit cards or medical bills. After the bankruptcy, with all their unsecured debt paid off and some of their student loan debt paid, many debtors can then manage a direct payment on the balance to pay off the remainder. An issue that Chapter 13 can create is that the loans will continue to earn interest while the debtor is in the repayment plan. So if the payment plan is only paying the interest, or nothing to the student loans, the total amount can increase over the plan. However, the debtor will be able to hold off on these payments while in the case.
While Chapter 13 may not be a permanent solution, it can stop a default or give a debtor time to improve their financial situation.
The attorney’s at Fears and Nachawati can help you make sense of your student loan debt and determine if a bankruptcy case can assist you in helping ease your student loan burden. To get started with a free consultation, call us today.