Befuddled by Student Loan Consolidation

Posted on August 4, 2011 at 9:20am by

It is a harsh reality of today’s post-collegiate environment – two-thirds of all students now graduate with burdensome debt that can follow for many years to come. Following a recent news story on CBS Evening News, a comment was made that a student CAN have their federal student loans discharged in a Chapter 7 bankruptcy IF it is found that repayment of the loan would impose a hardship on the borrower. If only it were that easy…

Discharging private student loan debt in bankruptcy currently requires a showing of “undue hardship,” a standard too often difficult to prove and very rarely met. The website FinAid estimates that less than 1% of private student loan borrowers in bankruptcy attempt to seek a hardship discharge of that obligation, and less than half of those people are successful.

Courts typically refer to the following three requirements that a person must meet to qualify for undue hardship to receive a discharge of their student debt:

  • First, the debtor must not be able to both repay the student debt and maintain a minimum standard of living based on his or her current income and expenses.
  • Second, these financial difficulties must persist for a substantial portion of the student loan repayment period. Borrowers need to show exceptional circumstances such as a disability or the need to care for a dependent.
  • Third, the debtor must have made good faith efforts to repay his or her student loans. The court will look to see what legitimate actions the debtor took at least to attempt to repay his or her student loans.

Many students find themselves holding multiple loans from one or more educational programs or universities. Since discharging of the loans is such a rarity, many students find themselves seeking out loan consolidation programs such as Direct Loans promising lower payments and ease of management. However, the complexity and inefficiency of what Alan Seigel of the Huffington Post calls “defective loan consolidation programs” puts many students even further in debt and destroys their confidence in government.

If you’re faced with mounting debt, including leftover student loans, take a moment to consult an attorney at The Sader Law Firm. We have more than 30 years of combined experience and can help provide you with real financial freedom. If you live in Kansas or Missouri, contact Neil Sader today for a free consultation at (816) 561 1818 to learn more about the options available to you.

We were recently asked to begin contributing to the National Bankruptcy Forum. 

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