THE BLOG
05/14/2013 04:14 pm ET | Updated Jul 14, 2013

What Can I Do About My Overwhelming Student Loan Debt?

Dear Steve,

I borrowed about 130,000 for my education.. :( I don't know why it was so much, but I did study aboard, bad mistake...

In debt about 430,000 dollars, both private and federal, and growing.

I'm in a temporary rate reduction program with Sallie Mae. They wanted 3,500 a month at first, but now I pay them 1614.14 every month, plus another 100.00 for my federal loan. Total amount 1714.14 every month.

I make 11 dollars an hour at my 1st job, and a couple hundred (if i'm lucky) at my second job every two weeks.

I paid Sallie Mae over 17,000 last year and my loan amount went up a few thousand dollars, so I'll never pay down my loan...

I'm 34 and live with my parents, I have no assets. They have co-signed for me which makes things really really really hard.. I feel hopeless.

Do I fit the model for undue hardship even if I haven't defaulted? Should I go into default just to try and file bankruptcy? Thanks for any help you can provide.

Dave

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Dear Dave,

I'm hoping your total amount of debt was a typo and not really $430,000 from student loans. Whatever the number is, it's a lot. Somewhere past X and into a lot, it really don't matter what the number is.

So I have some good news and bad news.

Let's get the bad news out of the way. Options for dealing with private student loans are limited. That's all the bad news.

The good news is there are options for dealing with them most people have never consider or aware of.

While everyone is under the somewhat misconception that private student loans can't be discharged in bankruptcy, a chapter 13 bankruptcy can provide you with enormous relief from growing debt and unmanageable payments.

For more on this and quotes from some bankruptcy attorneys, see this article.

A chapter 13 bankruptcy will not discharge your private student loans if they are not past the statute of limitions. What it will do though is buy you five years of breathing room, no collection pressure and potentially be able to minimize the fees and penalties that are adding up.

At some point the government is going to have to address the exploding problem of private student loan debt and my bet is it will become dischargeable again. The total balance of all student loan debt currently exceeds the total amount of credit card debt and as the balance grows it will put a stress on the economy. Eventually action will be taken to have a path out of the student loan financial slavery you are in now.

By going the chapter 13 bankruptcy route now you are buying peace and time for the laws to change. If they have not in five years you can roll the private student loan debt into a new chapter 13 bankruptcy.

I agree it's not a perfect solution but it is a solution that is backed by the power of the law.

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.

On the government subsidized student loans it sounds like you are already on an income based repayment strategy. For more information on that, click here.

Without a doubt, unless the country addresses the growing student loan debt problem it will become a necessity for more people to have to make bankruptcy part of their solution for dealing with the debt.

In fact I am now of the opinion if people can't make the regular student loans because of other debt sucking up all their money each month it would be better to strongly consider bankruptcy now, get back to making regular student loan payments and have the debt gone in ten years.

The income based payments give some breathing room but as it stands right now when the plans expire and the balance of the government subsidized student loans are forgiven, it will be taxable as income. Debt discharge in bankruptcy is not taxable.

I know, it's crazy, isn't it!

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