Student loans are some of the most difficult debts to manage. The average Florida resident with a student loan may owe thousands or tens of thousands of dollars — more than they could ever hope to repay, even with a good job they secured because of their degree. Even worse perhaps is the common knowledge that there is typically no debt relief from these loans during bankruptcy. However, things could be on the track to change.
Before 1976, debtors could discharge their student loan debt through bankruptcy. That year Congress changed the law, requiring at least five years of repayment before discharge was possible. This requirement was later lengthened to seven years. In 1998, it became practically impossible to discharge student loans unless a person could demonstrate that repayment created an undue hardship. Congress extended this requirement to student loans in 2005.
These changes were largely implemented out of the fear that students would purposely run up debt with the intention of filing for bankruptcy after graduation, but it does not appear as if there is any evidence to support that concern. The effects of forcing to people to carry student loan debts regardless of bankruptcy status has not escaped the notice of experts. At least 50 bankruptcy judges — both current and retired — told The Wall Street Journal that they would ideally like to help debtors with student loans.
Unfortunately, until student loans can be more easily discharged, this help comes in circumvented ways. These methods include supporting the cancellation of private loans made through unaccredited schools, permitting payments during Chapter 13 and providing debt cancellation through federal programs. Although these tactics are not a substitute for bankruptcy, they may still be helpful.
Bankruptcy can be a scary topic and learning that a large chunk of one’s debt is not eligible for discharge is often devastating. However, this does not negate the benefits of seeking debt relief through this channel. Whether pursuing Chapter 7 or Chapter 13 bankruptcy, people in Florida can mitigate the impact of student loans by discharging eligible debts and refocusing their financial efforts.