Posts Tagged ‘Student Loans’
USA Today recently published an article explaining that Americans’ student loan debt, which totals approximately $850 billion, now exceeds outstanding credit card debt in the U.S., which totals approximately $828 billion.
Perhaps a more interesting element of this story has to do with the monthly repayment numbers borrowers are expected to pay. The USA Today article suggests that $30,000 of student loans, payable at 6.8% interest over ten years would amount to $350 per month. At this level of debt, the average person would need to earn at least $42,000 per year. Unfortunately, as bankruptcy attorneys we commonly see student loan debt in excess of $100,000, with monthly payments over $1,000.
From a bankruptcy perspective, student loan debt is not dischargeable except in cases of “undue hardship.” In the Eastern District of Wisconsin, the court uses a very strict three part test to determine whether student loans may be discharged. As the law stands today, debtors in the Eastern District of Wisconsin have not been successful in arguing for hardship discharge on the grounds that they cannot find a job that pays enough to support their student loan obligations.
If you are planning to apply for a private student loan that requires a co-signer, or are considering co-signing such a loan, beware of the following: If the student passes away, the lender can still demand payment from any co-signer. This is different from Federal Student Loans, which are discharged if the student passes away.
In the Fall, the U.S. House of Representatives passed a bill that would require private lenders to disclose this policy to anyone co-signing a student loan, however, the bill has yet to gain any traction in the Senate.
It is recommended that anyone who has co-signed a private student loan take out a 20 year term life insurance policy on the student for the amount of the loan to ensure you will be fully protected if the student were to pass away.
Will bankruptcy affect a student’s eligibility for students loans?
Whatever the circumstances behind the bankruptcy, the student should talk with the financial aid administrator at the school he/she plans to attend, and explain the situation. The financial aid administrator may be able to help the student to certain loan programs or lenders.
In general, with Federal Loans bankruptcy will have no impact on eligibility. Title IV grant or loan aid may not be denied to a student who had filed bankruptcy solely on the basis of the bankruptcy. As long as there are no delinquencies or defaults on student loans currently in repayment, the student should be eligible for additional federal student loans. However, if some of the student’s federal student loans are in default, the student will not be able to get further federal aid until he/she resolves the problem.
Parents or graduates who apply for a PLUS loan or a Grad PLUS loan may be denied a PLUS loan if they have an adverse credit history. An adverse credit history includes having had debts discharged in bankruptcy within the past five years. Parents would be eligible with an endorser or the student may be eligible for an increased unsubsidized Stafford loan.