About 44 million Americans hold roughly $1.4 trillion in student loans — more than is owed by the American public on credit cards. The average borrower carries more than $37,000 in student debt, and at least one in four is either late on payments or in default. Primarily given that women outnumber men in higher education attendance and are more likely to pursue a graduate degree, they traditionally wind up with larger loan balances. The federal government accounts for the majority of student lending.
As higher education costs keep increasing and government grants and financial aid becoming more difficult to come by or covering a smaller portion of expenses, student debt will continue to accumulate. Accordingly, students enter the workforce already “in the hole” and often have to defer lifecycle events such as marriage, children and home purchasing as a result, thereby jeopardizing financial stability later in life.
Student loans in default are generally not subject to discharge in bankruptcy except in special circumstances where the debtor must show that: (i) he or she cannot maintain, based on current income and expenses, a minimal standard of living for the debtor and dependents if forced to pay off the student loan, (ii) additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loan, and (3) he or she has made good faith efforts to repay the loans.
There are alternative remedies under federal and state law of which student loan debtors may avail themselves:
- Forbearance. If a student loan debtor does not qualify for a deferment, the loan servicer may grant a forbearance, wherein monthly payments are either ceased or reduced for up to 12 months. Interest continues to accrue on subsidized and unsubsidized loans, including PLUS loans.
- Deferment. Deferment is a temporary cessation of payment of the outstanding principal balance of the loan. Interest must still be paid by the student loan debtor unless it is a special type of loan for which the federal government pays the interest during the deferment period. The government does not pay the interest on unsubsidized loans or on PLUS loans.
- Loan consolidation. Most federal student loans are eligible to be consolidated provided that they are not in default, in which case, certain requirements must be met to consolidate. Loan consolidation centralizes loans into one bill, lowers monthly payments by allowing up to 30 years to repay, and locks in a fixed interest rate rather than a variable interest rate/
- Workouts. Some private student loan creditors may offer workouts and loan modifications based upon certain general eligibility criteria.
As a workplace benefit, some employers match employees’ student loan payments.Federal loan repayment programs also exist. These programs as implemented by the Obama Administration require repayment with at least 10% of student loan debtor discretionary income annually for up to 25 years. President Trump, however, has proposed capping annual student loan payments at 12.5% of discretionary income, with total loan forgiveness of the outstanding loan balance after 15 years. “Students should not be asked to pay more on the debt than they can afford, and the debt should not be an albatross around their necks for the rest of their lives,” Trump said.