THE BLOG
07/26/2013 08:36 am ET Updated Sep 25, 2013

My Kids Can't Afford Their Student Loans - Mary Ann

Huffington Post Reader Question

Dear Steve,

Student loan debt is a problem. Sallie Mae signature loans of approximately $90,000.00 and have been paying $1000.00 per month for 6 years and still owe $84,000.00!!!!!

I'm writing to you on behalf of my two children who both are struggling to pay their variable interest rate loans to Sallie Mae.

Can you claim bankruptcy on your student loans an how do you find a lawyer that specializes in this field in your area?

Thank you!

Mary Ann

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Dear Mary Ann,

Thank you for writing to me and asking for help.

The common advice you hear from people is that you can't discharge your student loans in bankruptcy. Those people are what I like to call "wrong."

Student loans can be discharged or eliminated in full or in part in a bankruptcy filing. Generally speaking the primary reason is if the loans create an undue hardship. In my studies of past bankruptcy filings involving student loans debt the undue hardship is generally related to some type of underlying medical condition and loss or reduction of income.

You can see the results of my research into Sallie Mae student loan debt discharged in bankruptcy in 2012, here.

But there have been a couple of very interesting recent discharges where the student loan was reduced because the loan balance was not affordable or manageable and there was no underlying medical condition. This case in particular might be most appropriate for their situation.

2:12-ap-00039 - Opp

Plaintiff/Debtor attended The Art Institutes in Philadelphia from 2001 to 2003 and subsequently transferred to the University of the Arts ("U of A") from 2004 to 2007 where she received a degree in Bachelor of Fine Arts in Graphic Design.

Since graduating from the U of A, she has worked a variety of low paying jobs ranging from $10.00 an hour to $18.00 an hour.

Plaintiff/Debtor currently is employed as a Graphics Arts Associate earning approximately $41,000.00 and will most likely earn this approximate amount for the significant portion of her career.

Plaintiff/Debtor's present indebtedness on all of her student loans with the Defendants is approximately $185,000.00.

It is unlikely that Plaintiff/Debtor will be in a position to repay these loans during the duration of the repayment period. Although her financial position has improved in the few years since she incurred the loan obligations and based on the earning potential in her career field, it seems highly unlikely that her financial situation will improve to a level where she could afford to repay her loan obligation. - Source

Results
  • National Collegiate Student Loan Trust Loans * RBS Citizen student loan $45,377 - Discharged * Defendant National Collegiate student loan $7,162 - Discharged - Source
  • Sallie Mae owed $94,140 and reduces debt to $60,000 at 3% interest payable at $284.53 for 300 months. - Source
  • RBS Citizens $37,000 is not dischargeable but will be repaid at 0% interest and at $75 per month until the $37,000 has been paid. - Source

And then there was this other recent case as well where the student loan debt was discharged because it was unaffordable and unlikely to ever be repaid despite the borrowers best efforts.

There is also another very interesting category of private student loans, including some Sallie Mae student loans, that can be quickly and easily discharged in bankruptcy. For specifics on these types of loans see this article.

Finding the right type of help out there for the situation you described is admittedly difficult. It's not that it is impossible to deal with but that there appear to be not many people, including bankruptcy attorneys, who have studied this area in detail.

Here is one place you can look for a knowledgeable bankruptcy attorney but if you get stuck you can also click here.

I am currently working on a research project and examining federal student loan cases where people defaulted and were subsequently sued or garnished over their student loans. After all this research I've done in this area one point is painfully clear, the assumptions people have about how to deal with student loans is mostly wrong. Even when sued over a student loan debt there are still ways to resolve the situation. The problem is most people just don't know what to do so they do the wrong thing, mostly burying their head in the sand.

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