Iowa Bankruptcy Lawyer, Robert J Liptak - Bankruptcy Attorney in Iowa

A tremendous concern for bankruptcy lawyers nowadays is the incredible difficulty in discharging student loan debt.  (See Elizabeth Warren's comments). It used to be (just before the turn of the century) student loans which were in default for over 7 years could be discharged.  With high pressure and effective lobbying from the credit industry this discharge was repealed. Then, with years of more intense lobbying, by 2005 the definition of what a student loan was had greatly expanded to include all types of "educational" loans--basically anything that provides some training.

Since then we have seen an amazing growth in the privatizing of student loans with high initial and adjustable interest rates.  In order to discharge a student loan in bankruptcy there is a "hardship" requirement which basically allows a discharge only if it is nearly impossible to pay any of it back.  That actually requires an adversarial procedure aside from the bankruptcy, which can mean additional costs to the debtor. 

According to a New York Times article in April, 2011, student loan debt in 2010 outpaced credit card debt for the first time and is likely to pass $1,000,000,000,000 (that's correct, trillion). The rising costs of college and loan rates means that many people will be paying for their loans for longer and longer periods of time.  Imagine people will still be paying their loans when it is time for their kids to go to college. Of course, that presumes that student loan debt does stop people from getting married because they can't afford it (which is happening).  When a person is leaving school with a lot of debt, their choices are different than in the past.  Buying a home, getting married, starting a family, starting a business or even taking a satisfying job in a place that makes one happy are not options because of paying off a lot of student debt.

Hefty student loans carry lots of risks in the current economy.  Moreover, the government is slashing grants for low income students while university costs are increasing.  As the loan amount goes up and the doomed economy continues to hurt the middle and lower classes, there is an ever exploding default rate on student loans.  In addition, as unemployment rates are increasing and as is evident--when the economy gets tight the money still continues to flow upward in the corporate world--those at the bottom of the pyramid lose financially.  It's not an easy task to switch jobs or make up for the defaults that occur during the unemployment period.

Students who borrow to attend for-profit colleges are especially likely to default. They make up about 12 percent of those enrolled in higher education yet almost half of those defaulting on student loans.  According to the Department of Education about a quarter of students at for-profit institutions defaulted on their student loans within three years of starting to repay them.

Those attending for-profit colleges often do not complete their program and most never get a job in the field for which they were supposedly trained.  It all results in a negative mark on their credit report, which becomes the biggest barrier to moving ahead in their lives.  It delays their ability to buy a house.  It hurts their employment prospects, their finding an apartment, and almost anything they try to do.

Another thing that happens very frequently is parents, a relative or third party co-signed the loan.  There are all kinds of rules which allow or even require this (which is not the point here).  The point is if possible DO NOT co-sign on loans.  They will never go away for you until the loan is paid in full. Default on the loan by the person getting the education means you are responsible.  The lender can go after your wages and tax refunds in many cases.  It may even be able to go after your social security payments--which you never envisioned--if the loan is connected with the government.

Be very cautious in taking student loan and particularly in co-signing for them. This is a web of debt that is strangling the young and now even the elders of our working class.

Iowa Bankruptcy Attorney Robert J. Liptak
Fairfield, Iowa