The student debt crisis has been in the news a lot lately, both in Florida and around the country. Student debt is at a record high, as we discussed in a previous post, and that means it is getting harder for people who hold student loans to meet all of their various financial obligations. And as the price of higher education continues to increase, more and more young people are asking their parents to cosign on private student loans to cover tuition.
This high debt burden on the whole family is making it more difficult to maintain mortgage payments, keep credit card spending under control, and meet other obligations like car loans.
Judges will often look to a variety of factors when assessing whether a borrower should remain on the hook for a certain debt. In one case of parents trying to discharge student loan debt they had taken out for their daughter, the judge considered the fact that they had continued making payments on extras like their daughter’s cell phone and their expensive cable bill and determined that they could reprioritize and pay the loans back.
Bankruptcy proceedings for a parent or grandparent that has co-signed on student loans can be an emotionally charged situation for many Florida families. Family members often agreed to help secure the loan, believing that higher education would lead to more earning potential and that paying off the debt wouldn’t be such a struggle. However, the lagging economy and difficult job market means that many college graduates aren’t finding jobs or are making less money than anticipated. For those who paid out of state or private school tuition, this can mean the payments are unmanageable.
Current bankruptcy law requires that cosigners go through the same process as the primary student loan borrower who is filing for bankruptcy. Unfortunately, the student loan debt itself is almost never discharged, so the bankruptcy process would help mostly to ease the burden of other types of debt and the judge may take the existence of student loans into account.
More information discharging debts for Florida residents during a bankruptcy is available on our website.
Source: Wall Street Journal, “Soured Student Loans Bankrupt Parents, Grandparents,” Katy Stech, Oct. 29, 2012.