Private Tuition Loans Most Oppressive, Not Likely Discharged in Bankruptcy
Much has been written about the stringency of American bankruptcy laws since passage of the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act. The law targets individuals who might try to game the system, declaring bankruptcy while retaining significant assets. The provisions of the 2005 act have largely succeeded in preventing abuse. But in a slow economy, student loans can be difficult to pay off.
Student loan debt cannot be discharged in most bankruptcies, even while debt on credit cards, auto loans and other obligations can be (the exact provisions vary by state). It is a growing problem as student debt levels have risen at a rate greater than inflation over the past 25 years.
The situation is most troublesome for students who took out student loans from banks and other private institutions as opposed to federal student loans. The latter have fixed rates of 6.8 percent or less, and they allow lower and more affordable rates during periods of unemployment or other financial hardship. In contrast, private lenders tend to have higher rate loans at variable interest rates without special hardship allowances. Private loans constitute about $150 billion in overall student debt. All student loans total $1 trillion when government-issued loans are factored in.
The site FinAid.org studied 20 years of student loan data and found that six-figure debt is most likely among lawyers and doctors (one-third of attorneys and half of doctors). Those with the highest debt tend to have private loans.
Doctors and lawyers also eventually earn the highest incomes. But should health or other issues lead to mounting debts – or if they chose lower-paying community service jobs – paying back on those loans can be difficult. The only way individuals can have student loans forgiven in a bankruptcy is to prove extreme hardship and an inability to improve upon their financial situation.
If you are concerned about your debts, seek help from a reputable bankruptcy law firm.