Student Loans can Haunt You Well After School

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Student Loans can Haunt You Well After School

The Washington Post recently reported that student loan balances are an ever increasing problem for those 50 and over. (http://www.washingtonpost.com/student-loans-saddle-both-kinds-of-seniors-graduates-and-grandparents/2012/04/06/gIQAYZRi2S_story.html).  Indeed, approximately 20% of the $870 billion dollars owed on student loans is owed by those over the age of 50.  The total owed on student loans is far larger than for either credit cards or vehicle loans.

This issue raises serious questions with respect to bankruptcy filings in the state of Arizona.  I have been filing bankruptcy cases for over 25 years, and lately, it seems nearly all of the filings include at least one student loan.  The article states that approximately 5.4 million borrowers had at least one past-due student loan account. That is a staggering number!

A very troubling aspect of this development is that many of the debts seem to be incurred while acquiring degrees that do not produce the desired (and needed) income.  One victim of this trend is a young man who had student loans of over $100,000, obtained while attending medical school outside of the United States.  He was subsequently unable to pass the Board in the United States, and therefore, is not working as a physician.

Because payment of the loan is not an “undue” hardship (he is still breathing, and working), it would be virtually impossible to discharge his student loan in bankruptcy. His degree is in an area of specialized training, and the debts were acquired legitimately, but to a school that facilitated the acquisition of student loan debt, without considering the drastic consequences to the student/borrower.  This occurs often with other types of degrees which do not provide marketable skills in suitable employment that would enable borrowers to pay back their loans.

In 2005, the Bankruptcy Code was drastically amended, and one of the changes was to greatly expand the definition of “student loan” for purposes of bankruptcy discharge.   It now includes all loans acquired, even from private sources, for an educational purpose.  That has greatly expanded the number of debts falling into the category of “student loans” not dischargeable in bankruptcy, unless “undue” hardship applies.  That is a high bar to meet, but has been satisfied in some circumstances.  A qualified professional can explore the likelihood of prevailing in those instances, and the standards which would need to be met.

 

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