Can I File Bankruptcy On My Student Loans?

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Published: 08th April 2015
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What is the price of a college education in the United States? Depending on the state and institution, it varies and many students find themselves using federal government and private student loans to pay for tuition, books and room and board.Recent data from the Federal Reserve shows that student loan debt currently accounts for the majority of non-mortgage household debt passing credit cards, auto loans, and other loans.

What are some of the student loan programs available?

- Federal Stafford Subsidized or Unsubsidized - Loans (subsidized loans are based on financial need and unsubsidized are not)
- Perkins Loans
- PLUS Loans
- Institutional Loans
- Private student loans (Sallie Mae, Banks, etc.)

The interest rate on federal student loans doubled to 6.8%, beginning July 8. This affected the rates on subsidized loans as the unsubsidized loan rates were already at 6.8%. Fortunately, there is some hope for students prior to them commencing school in the fall.

On July 17, lawmakers reached a tentative deal to retroactively moves the rate on loans for the coming school year to a market-based rate, roughly 3.86% this year. The deal ties the interest rates to the 10-year Treasury note plus 2.05 percentage points for undergraduate loans and 3.6 for graduate loans. If passed, it allows students to take advantage of historically low interest rates and ensures taxpayers will not foot the bill for arbitrary rates set by Congress.

Figures and dates concerning student loans:

- $902 billion to $1 trillion: Estimated outstanding student loan debt in the US
- 37 Million: Estimated number of borrowers with student loan debt
- $50.6 billion: CBO’s report showing the government’s 2013 fiscal year “profit” from student loans
- 50.1%: Percent of enrolled students receiving student loans 2010-2011(not including parent loans)
- 2013: Graduates have an average of over $30,000 in college debt
- 2013: 70% of the graduating class will have debt
- 2012: Congress extended the fixed interest rate of 3.4% for another year on federally-backed student loans
- 2012: 17% of loans were delinquent by the end of the year
- 2007: 3.4% interest rate established for federally-backed student loans
- 2004-2013: Student debt has tripled in the past 9 years

Note the figure stating that 17% of loans were delinquent at the end of 2012. Delinquency and defaulting on your loans are two different things to consider. If you fail to make loan payments by the due date, your loan becomes delinquent. This can affect your credit rating as well. You default on your loan if it is delinquent for 270 days. The consequences of defaulting on your loan can be devastating. When defaulting, you have to pay the entire unpaid balance and any collection fees immediately.

What are your options if you are unable to make payments?

- Deferment – a period during which repayment of the total sum of the loan, interest and any interest that has capitalized is temporarily delayed.
- Forbearance – allows you to stop making payments or reduce your monthly payments for a period of 12 months.
- Changing repayment plan – depending on your qualifications, this can help you obtain lower payments.

In certain limited circumstances, your student loans can be canceled, forgiven or discharged. For example, if you are totally and permanently disabled you may be relieved from having to repay your federal student loans. Some teaching and public service jobs qualify for loan discharge as well. Discharge may also occur if the school closes or falsely certifies your eligibility to receive the loan. Your student loan debt is discharged upon your death as well.

Unlike other unsecured debt, student loans are generally not dischargeable in bankruptcy. In order to discharge student loans in bankruptcy, the court must find that repayment would impose undue hardship on you and your dependents. The bankruptcy court uses a three-part test to determine hardship: repayment will not allow you to maintain a minimal standard of living, that the hardship will continue for a significant portion of the repayment period and that you made good-faith efforts to repay the loan before filing for bankruptcy.

Most of the debtors receiving a bankruptcy discharge are related to medical issues. Others include elderly people with limited incomes and no chance of increasing earnings. In some instances, the court orders or the lenders agree to partial repayments and repayment on better terms than available through the conventional programs.

For any questions or concerns, Orlando Bankruptcy Attorney Tina Caraballo is a phone call or visit away. Call Caraballo Law Firm, PL today at (407) 601-5006 or fill out our contact form to schedule an appointment via

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