FAQs about Student Loans

What can I do about the high interest rates I'm locked into?

Interest rates are on some lawmakers minds. The "sky-high" interest rates Burgess Everett mentions in his Politico story ("Student loans next on Dems' 'Fair Shot' agenda") is on Sen. Elizabeth Warren's mind. As of May 2014, Warren is reportedly introducing a bill that would allow people to refinance at lower rates. At the time of this writing, StudentDebtCrisis.org sent an email notifying subscribers that Warren and two dozen other Senators had just introduced the Bank on Students Emergency Loan Refinancing Act, which would allow borrowers to refinance both federal and private loans. But don't hold your breath. Passing this bill will take bipartisanship.

Can I discharge student loans in bankruptcy?

Generally not. Unless you can prove "undue hardship," which is a difficult thing to prove, student loans aren't dischargeable in bankruptcy. Undue hardship generally means that you are permanently unable to pay back your student loans, due to something like disability. Even if you cannot prove undue hardship, bankruptcy will get rid of other debts (credit cards, medical bills, etc.) which should make your student loan debt burden easier to handle. And that's generally true whether or not U.S. lawmakers allow borrowers to refinance to lower interest rates.

Were student loans ever dischargeable?

Things change. You may be surprised to hear that it wasn't always like this. According to FinAid.org (which bills itself as the most comprehensive source of student financial aid information), you could discharge student loans in bankruptcy before 1976. After that, lawmakers made it increasingly tough to discharge student loans. As Charles Pierce wrote for Esquire ("Elizabeth Warren Is the Teacher"), Warren was surprised to find the truth about debt in her life as a law professor at the University of Texas. "[S]he had thought she was going out to study the schemers who were working the system and the moochers who were cheating the people to whom they owed money," Pierce wrote. "She learned [...] that everything she knew about them was wrong [...]." Yet today's "undue hardship" requirement makes it very difficult (though not impossible) for hardworking people who happen to have suffered a setback to discharge student loans.

Can I do anything to pay off my student loans faster?

The sooner you pay down your student loans, the less you will pay over time. CNBC reports that there is roughly $1 trillion in student loan debt in this country, with interest rates running from 3.86-12%, depending on the type of loan (government vs. private). Very little of this debt can be discharged in bankruptcy. So what can you do? CNBC suggests investing in the markets(as opposed to focusing on putting money into a retirement account), though the article does hedge: "Investing to pay off your loans does depend on how much disposable income you have-if you can't even meet your monthly bills, then this strategy has no place for you." And what isn't mentioned is the fact that retirement accounts are generally protected in bankruptcy, so if you've been socking money away for retirement, it wasn't all for nothing if you are considering bankruptcy.

What do I do next?

Every situation must be evaluated on its own. That includes yours. What works for one person (investing in the markets to pay down student loans, for example) might not work for you. If you're saddled with thousands of dollars of student loan debt with high interest rates, you've lost your job or you're otherwise having trouble making ends meet, and you're paying bills with credit cards and personal loans, it might make sense to consult a bankruptcy and consumer rights lawyer. This isn't just self-promotion for Billbusters, Ledford, Wu & Borges, LLC. If you choose to get in touch with us, we offer free consultations, and can help you determine what option - whether debt negotiation or bankruptcy - is best for you and your situation.