Getting out of Student Loan Debt

On May 3, 2010, US News reported in “New Hope for Debtors Struggling With Student Loans” that most Americans who use loans to pay for a university degree, obtain jobs after graduation, to pay off debts, but economic troubles for the past few years have prolonged unemployment causing for recent college graduates.

Thousands of graduates who have studied hard or passed professional exams, have not been able to make their student loan payments. Over 20% of students who took out private loans in the last several years to pay for tuition have defaulted. Some people have gone to school expecting high paying jobs only to end up with hourly wages for jobs they could have gotten without the education.

Around 7% of students who took federal student loans in 2007 have defaulted. People in Washington DC are advocating reform to allow individuals who file bankruptcy to get out of their private educational loans. Currently, when someone is not able to pay back student loans, bankruptcy may not be the solutions. The individual can file bankruptcy to discharge other debt besides student loans to free up cash, but student loans are not normally dischargeable debt.

The Department of Education is often an opposing party in a bankruptcy case when someone wants to eliminate student loans. Where someone can get student loans cancelled, the indivdual needs to establish undue hardship.

To show undue hardship, a person lets the court and interested parties in a bankruptcy case know how the student loans affect the debtor, family, or dependents. It is difficult to show undue hardship unless a person is physically not able to work and there is no chance of the person generating income. The individual may show the person is physically unable to work by indicating the only income is welfare or social security. If the individual has mental abilities, but physical disabilities, the court may ask how the disabilities, keep the person from working.

Someone cannot get student loans discharged in order to apply for financial aid for a graduate degree. The individual might argue economic loss in not having the peace of mind of the student loan debt discharged, but if the person has mental abilities to go to graduate school, the person is able to work. This ruins the defense of not being able to generate income to pay off the debt.

Contact an experienced New York bankruptcy attorney for counseling on bankruptcy proceedings.