Student loan debt is now over $1 trillion nationally with 34 million borrowers. Of those, 16% or 5.5 million are hiding out in a forbearance or deferment (because they can’t afford the payments), and most likely increasing their debt due to interest capitalization.

Those people in hiding, and those already in default, are also being told that the loans cannot be discharged in bankruptcy or are trying to get it discharged based on total disability, when in reality that can be done without filing bankruptcy at all!

To top it all off, income based repayment plans, the simple solution for affordable federal student loan repayment, are only being used by 6% of borrowers (2.2 million). Why is that?

The Department of Education Has Failed Us

The answer is that the student loan industry itself, through the U.S. Department of Education, its loan servicers, and debt collectors, are not doing a good enough job of keeping borrowers out of default and in affordable income based repayment plans!

Loan servicers are not educating people enough about how to get into affordable repayment plans, debt collectors (who work on commission) are not telling defaulted borrowers how they can get out of default, and an uninformed legal profession is either shrugging its shoulders entirely, putting borrowers into unnecessary bankruptcies, or trying to cure defaults through chapter 13s.

So What Can Be Done?

What is the solution? Well, in the short term, borrowers need to consult with properly trained, experienced student loan practitioners to find solutions to their loan problems. Many people are foundering about because they are not getting the right advice.

Then the Department of Education needs to engage in a bit of education and inform borrowers of what solutions are available. This is a more long term solution that will help borrowers before they get into trouble.

But ultimately, it is Congress. How about revising the bankruptcy laws that protect private student loans? These products do not have the affordable repayment options of the federal programs, with no way of getting out of default. Although it would help only about 15% of borrowers, it would be a start.

How About Making Student Loans Dischargeable in Bankruptcy?

Finally, how about the radical thought of removing from the bankruptcy code the nondischargeability provisions for all student loans? No one wants to file bankruptcy, so those who could get into an income based plan for their federal loans (because the Department of Education and student loan lawyers told them about them) would. Those disabled would file for administrative discharge. The rest who were truly destitute could then get the bankruptcy discharge they need.

Also, tyrannical loan programs like New Jersey’s CLASS loans would be forced to adopt a more reasonable position towards borrowers, thus getting them back on the road to repayment and refilling the state coffers.

Think about all of this when you go to the polls to vote this Fall. Part of an effective economic recovery is a graduating work force who can survive financially!

Do YOU Need Help?

If you live in southern New Jersey and need help with your student loans, please feel free to call my office at 856-432-4113 or contact me through this site to schedule an appointment in my Woodbury office to discuss your case.

If you would like more information about student loans, you can dowload my free book, I Graduated; Now What? A Guide to Dealing with Your Student Loans.

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Steven J. Richardson
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Bankruptcy, Collections, Student Loan, DUI and Traffic Court attorney in Woodbury, NJ.
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