The First Crack: $270 Billion In Student Loans Are At Least 30 Days Delinquent

Back in late 2006 and early 2007 a few (soon to be very rich) people were warning anyone who cared to listen, about what cracks in the subprime facade meant for the housing sector and the credit bubble in general. They were largely ignored as none other than the Fed chairman promised that all is fine (see here). A few months later New Century collapsed and the rest is history: tens of trillions later we are still picking up the pieces and housing continues to collapse. Yet one bubble which the Federal Government managed to blow in the meantime to staggering proportions in virtually no time, for no other reason than to give the impression of consumer releveraging, was the student debt bubble, which at last check just surpassed $1 trillion, and is growing at $40-50 billion each month. However, just like subprime, the first cracks have now appeared...

One thing hardly ever mentioned, know it works because it worked for me - the Army. Went _back in_ the .mil after racking up serious credit card and student loan debts. It’s not for everyone of course though, but it should be offered as an option for serious consideration. Sometimes even the suggestion garners an inordinate negative response. ‘Jus Sayin’.

Gets one out of the basement. Seems to me people should scale back their spending on “higher” education and maybe expectations in some instances. Fact is, College isn’t for everyone in the same sense that neither is the Army.

My best experience with student loans was looking back at it, had to call for a payoff, (about 10 years early) right? Seems to me not many people do this now that think about it.

Effectively, there is no way to discharge student loan debt in Bankruptcy. There is a hardship discharge process by which the U.S. Department of Education can certify that there is no way that a person can pay toward their loan obligations. That process takes at least 3 years, and I have never encountered anyone who has accomplished such a discharge. The bankruptcy courts themselves have ruled that if there is any way for a person to make payments on their student loan obligations, they will not be discharged. I usually tell clients that they'd have to be in an iron lung and have no assets and no prospect of recovery to obtain a hardship discharge. I don't think that is an overstatement.

Section 523 of the U.S. Bankruptcy Code includes, in a listing of types of debts which are an exception to discharge:

(a) A discharge under section 727, 1141, 1228 (a), 1228 (b), or 1328 (b) of this title does not discharge an individual debtor from any debt—
...
(8) unless excepting such debt from discharge under this paragraph would impose an undue hardship on the debtor and the debtor’s dependents, for—
(A)(i) an educational benefit overpayment or loan made, insured, or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or nonprofit institution; or
(ii) an obligation to repay funds received as an educational benefit, scholarship, or stipend; or
(B) any other educational loan that is a qualified education loan, as defined in section 221(d)(1) of the Internal Revenue Code of 1986, incurred by a debtor who is an individual;

That is not to say that there are not people who are in impossible situations. I know someone with a student loan balance which is just a shade under $250,000. They have 4 university degrees and are in a licensed profession. It will be very difficult for them to pay off the debt, but it is feasible (or at least imaginable).

My unease in seeing the frequency of these news and opinion pieces entitled "Student Loan Debt: America's next disastrous bubble?" or "Holding economic recovery back: student loan debts", is the knowledge that some sort of forgiveness program is probably already drafted ad ready in the Obama Administration. Make the taxpayers in Kansas pay for Junior's degree from Brown or Columbia. It would be so inconvenient for him to have to do so, don't you know?

I paid my student loan off a couple of years ago. It infuriated me to see people getting Pell Grants and then turning around and buying furniture with it or paying their cars off. One girl in my class lived with her sister for two years and worked for cash so she would qualify for grants.

While I am sure many people don’t have the money to pay on their student loans right now, I wouldn’t doubt that others are purposely not paying and are banking on getting a deal on their loans like the people did who have been behind on house payments. Let’s face it, it is a big enough problem that it has gotten people’s attention and will have to be addressed much like the housing crisis.

It is no secret that many of these punks feel that they shouldn’t have to pay the money back, that their education should be financed by others, and are looking for a deal that will give them the opportunity to walk away scott free or to have the loan considerably reduced.

Exhibit A:

http://www.mndaily.com/2011/09/29/students-push-debt-forgiveness

I had to call for my payoff as well. It was pretty funny- the guy stuttered when I asked for for the payoff. (I needed to know how much it would be on a specific day as I was paying online through my bank.) I paid the designated amount for the first six months of my loan then never paid less than double. When we got tax money back or any other payments, it was applied as well. And it did feel good to see it go bye-bye. The man on the phone even congratulated me. I don’t think he was getting many calls for payoff amounts at that time. I am sure it is even worse now.

And I carefully chose a major that I was able to use immediately. Not this women’s studies or gay studies bullcrap.

“I don’t think he was getting many calls for payoff amounts at that time.”

Yeah... must have talked to the same guy! It was kind of awkward, lol.

Read somewhere, the whole raison d’être for disallowing student loans to be discharged in a bankruptcy was because so many were purposefully walking away from their loans. (Doctors and lawyers). So we got that goin’ for us. /sarc

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