Dear Steve,
Went to Temple University and got a BS in Exercise Physiology. I owe Sallie Mae over $165,000 in loans, with super high interest rates (3 of my loans are at 9.25%, 12%, and 12.25%). I only make $32,500 a year, which is pretty standard for what I do.
If I file for bankrupcy, can my Sallie Mae loans be discharged?
Melissa,
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Dear Melissa,
If this was 2004 the answer would be, "no problem." But for whatever reason Congress changed the bankruptcy law no longer making private student loan dischargeable in in bankruptcy.
But one thing I've learned is that just because the loans are being managed by Sallie Mae does not mean they are all private loans. They might be subsidized loans and if so you'd be eligible for some of the income based programs from the Department of Education. See my guide for more information. It will also show you how to check if they are subsidized or not.
You have unfortunately fallen into the nasty math trap where the income in a particular field will not support the cost of education. It's like leasing a Rolls Royce on a Ford Fusion budget.
I don't think there is any doubt you got a great education and are probably massively qualified to be the best person out there with a degree in exercise physiology. And that's where this story falls apart.
If your loans are not government backed or subsidized your options for dealing with the debt are limited to what the lenders will offer and forbearance or deferment is almost never a good idea as interest will grow the loans balance to dangerous heights.
Private student loans are dischargeable in bankruptcy if they are in default and outside the statute of limitations. You'd really need to meet with a local attorney licensed in your state to determine when the statute of limitations will expire for you.
The tragedy is that while financial aid offices of colleges and universities provide counseling and guidance to get the money to put your butt in a seat so they can earn tuition, there is no effort I am aware of for schools to counsel you if the loans will be affordable.
It really wouldn't take much of an effort for a fine school like Temple to have said to you as an incoming freshman, "So Melissa, you want to get a degree in exercise physiology. Well the average salary in that field is $32,500 and you are going to owe $165,000 in student loans when you are done and you won't be able to afford."
Watching this same situation happen time and time again to great young people with terrific lives ahead is like watching the horror movie version of Groundhog Day. The Daily Show had a perfect segment on this issue. Watch it here.
Besides the obvious solution of using a large chunk of your income and living at home with Mom and Dad to cut expenses, if the loans get unmanageable and you think Congress might change the laws to make student loans more affordable to repay, then you can always meet with a local bankruptcy attorney and talk about a chapter 13 bankruptcy. The five year payment plan in the chapter 13 won't discharge your loans but it can give you a court mandated repayment plan that can hold collectors, collection fees, and penalties at bay.
You can click here to find a local bankruptcy attorney and talk to them for free about your specific situation. Get the facts and then you can make an informed and educated decision if bankruptcy is right for you.
Recent research has shown more people who meet a very specific criteria have found some success in discharging their student loans in bankruptcy. See my video on this below.
I certainly wish there were better options. But it is what it is.
I happen to live in Raleigh, North Carolina and surrounded by Duke, UNC Chapel Hill, and NC State. I often find myself passing through those schools and I always winder how many students I see will wind up in the same unfortunate situation you've found yourself in.
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