Dealing with student debt

Mounting student debt is a problem facing many Americans. The struggling economy has left many recent graduates unemployed and unable to make their student loan payments. According to a recent release by the Federal Reserve Bank of New York, the number of student loan payments that are 90 or more days delinquent is at an all time high; 11% of student loan balances are more than 90 days delinquent. This is higher than the delinquency rate for all other types of debt, including credit card debt and home mortgages.

These numbers are especially troubling given that fact that the number of people taking out student loans is at an all time high. The total amount of outstanding student loan debt rose above $1 trillion in 2011 and now exceeds the total amount outstanding credit card debt, which hovers around $798 billion.

In addition to not being able to make their loan payments, having a large amount of student loan debt can affect people in other ways. For example, many graduates are having to post-pone home ownership because they are unable to afford mortgages. Student debt not only affects graduates, but also affects thousands of parents who take out loans to pay for their children's education. According to the National Association of Consumer Bankruptcy Attorneys, the number of parents taking out loans to pay for their children's education is up 75% since the 2006-2007 academic year.

Student loans and bankruptcy

Many people struggling with student loan debt wonder if bankruptcy can help. Unfortunately, it is very difficult to get student loans discharged through bankruptcy. In the 1970s, a law was passed that prohibits the discharge of student debt through bankruptcy for everyone but individuals who face an "undue hardship". This standard is incredibly difficult to meet and may require an individual to prove to a federal judge that there is "a certainty of hopelessness" that the person will be unable to repay his or her debts.

Other ways to deal with student debt

Although most people will not qualify to have student loan debt discharged, there are ways to make paying loans off less burdensome. The following ideas can make dealing with student loan debt more manageable:

  • Consider filing bankruptcy to get rid of other types of debt. If having to make payments on other types of debt is making it hard to pay student loans on time, consider filing bankruptcy. Although bankruptcy will not eliminate student loans, it can eliminate most other types of debt, which might make it easier to manage student loan payments.
  • Consolidate student loans. Consolidating student loans allows you to bundle several loans into one. Sometimes having only one loan to make payments on instead of several can help.
  • See if you can restructure student loans. For example, extending the length of time over which the loan will be repaid can lower monthly payments.
  • Ask family for help. Depending on your situation, it may be worth it to ask family members for help. Sometimes a parent or grandparent is willing to take out another type of loan with a lower interest rate, such as a home equity loan, to pay off your student loan debt. You can then make payments directly to your relative.
  • Aggressively pay off student loans. When possible, it is a good idea to focus on paying off student loans before making other large purchases that require you to obtain more loans. Making sure to pay student loans off in a timely manner will help improve your credit score.

If you are struggling with student debt and believe that eliminating other types of debt could help, speak with an experienced bankruptcy attorney. An attorney can evaluate your particular financial situation and help determine if bankruptcy is a good option for you.