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Your Student Loan Burden: Good News About Interest Rates?

Are you overwhelmed by student loan payments?  As I’ve blogged about previously, the general rule is that a person who has filed for bankruptcy will not receive a discharge of student loans.  The only way to do so is to seek a determination from the court that repayment will impose an “undue hardship.”  Proving the required factors is very difficult.

However, there may be some temporary relief on the horizon.  The rate on subsidized Stafford loans is currently set to increase to 6.8% in July.  Yesterday Senate Democrats proposed legislation that would postpone an interest rate increase on student loans for two more years.  The current 3.4% interest rate would extend into 2015.

A similar extension granted in July 2012 during the Presidential campaign cost an estimated 6 billion dollars.  This year, the President has proposed allowing the interest rates to change and respond with market conditions.  Interest rates would depend on how much it costs the government to borrow money.   This issue has created a rare alignment of red and blue.  Three Republican  Senators, including Lamar Alexander, have introduced a bill to allow the return to market-based rates.

Whatever the outcome, the debate continues about whether changes should be made with regard to student loans’ dischargeability in bankruptcy.  Take advantage of our firm’s free consultations if you have questions about your student loan debt.

 

 

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Money Blues in the Big Orange: Student Loans

Many recent graduates (and many not-so-recent ones) find themselves with hefty student loan payments.  With job prospects still slim in many fields, they may wonder if bankruptcy would provide them relief.  Generally speaking, a person who has filed for bankruptcy will not receive a discharge of student loans.  The only way a debtor may do so is by seeking a determination from the court that repayment will impose an “undue hardship.”  The debtor must prove he cannot maintain a minimal standard of living if forced to make loan payments, that the reasons he cannot pay now are likely to continue, and that he has made good faith effort to make payments prior to filing bankruptcy.  Oyler v. Educ. Credit Mgmt. Corp. (In re Oyler), 397 F.3d 382, 385 (6th Cir. 2004) (quoting Brunner v. N.Y. State Higher Educ. Servs. Corp., 831 F.2d 395, 396 (2d Cir. 1987)); Barrett v. Educ. Credit Mgmt. Corp. (In re Barrett), 487 F.3d 353, 358 (6th Cir. 2007).

In a recent case in the Eastern District of Tennessee, a debtor owed nearly $250,000 in student loans and sought a discharge.  He had earned four degrees, including a law degree, but was denied a license to practice law in Tennessee.  The Bankruptcy Court dismissed his case, finding that (1) he did maintain a minimal standard of living but had not taken steps to maximize his income; (2) his present reasons for being unable to make payments were not likely to continue; (3) he was 31 years old and did not have any medical or physical limitations that prevented him from finding some sort of employment; and (4) he had not made a good faith effort to make payments because he paid less than $1,000 towards the loan before filing for bankruptcy.

As always, consult with a bankruptcy attorney regarding your debt and your options moving forward.

 

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