Credit Card Debt has again increased. The national average is $16,000. The more troubling trend is that student loan debt is increasing. There are no statistics to connect the two trends, but it is only natural to assume many students carry large credit card balances following their graduation.
Student loan debt grew 6.3 percent from September 2015 to September 2016. Over the past decade, it is up a one hundred and eighty six (186) percent. The Federal Reserve recently raised interest rates which is just the beginning of an anticipated trend. Payments on credit cards and student loans may barely cover the interest which means payments will barely make a dent in the outstanding principle on variable rate loans.
Also, older Americans are taking on student debt to retrain after job losses and parents are backing loans for their children. Student debt is following people into retirement like never before. What is the answer and can bankruptcy ever help?
Social Security garnishment
Last year, 152,000 people receiving Social Security found their monthly check decreased - the typical garnishment was about $140. This amount was directed toward unpaid student loan balances.
A Government Accountability Office report noted that more baby boomers are entering retirement with student debt. As of last year, seven million Americans over the age of 50 owed $205 billion in federal student debt. One in three was in default indicating that garnishments may be on the increase. This will make the mortgage crises seem small when the student loan collapse finally hits.
Income-driven repayment plan (IBRP) sometimes makes the problem worse
Much has been written on dealing with student loans through income-based repayment. But often these program only cover interest and not principal. Balances continue to grow, trapping a borrower under a mounting pile of debt that can never be repaid.
Refinancing student loans may be a better option. Especially on variable rate loans, this could lock in a lower rate and ensure that payments are going toward principal It also puts you in the position of only having to make one payment rather than a payment on each loan. But this may only be delaying the inevitable.
Before refinancing or entering an income-based repayment program, find out whether bankruptcy might be an option.
Sit down with a bankruptcy attorney
Discharging student loans in bankruptcy is on the rise and MAYBE, JUST MAYBE, you might be one of those who can benefit. There was a Federal Court Case commonly referred to as the Brunner test. This case established a standard for Courts that involves a totality of the circumstances analysis before a hardship discharge of student loan debt can be granted.
One woman received such a discharge after she had been saddled with significant debt (more than $300,000) after pursing a medical degree that she could not complete. She was able to prove payments would prevent her from providing adequately for her children - including two sons with autism. Another recent decision determined a borrower could repay the principal but could not pay the interest and support the family. The Court ruled the interest could be discharged.
Private student loans may also be easier to discharge. If a loan doesn't meet certain requirements it is no different that credit card debt. For-profit schools may not meet these guidelines.
Loan forgiveness may be an option for some students stuck with loans, but a worthless degree and promised employment that never materialized. Loan forgiveness, however, has its pitfalls. Sometimes, there can be tax consequences for out-of-bankruptcy loan forgiveness. Don't get trapped in that situation.
Certain types of work can also qualify for loan satisfaction in lieu of actual payment.
In summary, there are options but make sure you talk with someone who can review your situation. Everyone is different. Find a solution that meets your needs; call now!