James R. Balmforth: Bankruptcy Lawyer Park City Utah

If you are unable to pay off your student loan debts, speak to an experienced Park City Utah bankruptcy lawyer. While bankruptcy does not discharge a student loan debt, you may get some benefit by filing for bankruptcy.

Since the mid-1990s, there has been frequent and consistent criticism of the U.S. Department of Education’s oversight of student loan companies. This criticism has come from a variety of sources, including members of Congress, public interest groups, and grassroots organizations. Even the Office of the Inspector General for the U.S. Department of Education has issued scathing criticisms regarding the department’s oversight of its loan programs.

Since the 1970s, the burden of college tuition has shifted dramatically from the state to the student. In 1977, it is estimated that students and their families borrowed about $1.8 billion through U.S. federal loan programs in order to attend college. By 1989, this amount had increased to twelve billion dollars. By 1996, it had soared to thirty billion dollars. Today, more than seventy billion dollars is borrowed through federal loan programs, and more than fifteen billion dollars is borrowed annually from private lenders.

Congress’s removal of standard consumer protections for these loans, the growing tendency to attach fees to the debt, and the collection methods that student loan companies were allowed to use all set the stage for unprecedented profiteering by the lending industry. It is not surprising that many personal fortunes were made by well-connected student loan executives— particularly after the amendments to the Higher Education Act in 1998.

In practice, student loan guarantors do two things. First, they extract significant funding from the federal government in return for serving in an extremely vague and ill-defined oversight capacity to the lenders. They themselves enjoy very little oversight from the federal government.
Second, they take defaulted student loan debt, attach massive penalties and fees to the debt, then proceed to use the various collection tools provided by the federal government to extract this increased amount from the borrower.

Private Student Loan In Bankruptcy

A great number of borrowers were thrust into financial insolvency due to family medical situations, and many were forced into bankruptcy because of overwhelming medical bills. In these cases, student loans, being nondischargeable in bankruptcy and inescapable unless the borrower can prove total and permanent disability, become a crushing weight—particularly after the penalties and fees that result from defaulting. Another type of consumer who is saddled with unmanageable student loan debt is the borrower who has taken out a private loan. The numbers in this group are growing very quickly. These borrowers tend to realize when they’re fairly young that their financial situations have become desperate. Private student loans are nondischargeable in bankruptcy, just like federal loans, but they carry far higher interest rates. These borrowers thus find themselves with skyrocketing amounts of debt more quickly than those who have federal education debt alone, but neither group of distressed borrowers has any power to negotiate for better repayment terms or for reasonable compromises.

Cosigning Parents In Bankruptcy

There has been an alarming increase in the number of parents who are faced with financial ruin because they cosigned loans for their children. This is due primarily to the explosive growth of high-interest private loans in the past decade, but it is also fueled by a growing number of parents who are taking out federally guaranteed PLUS loans so their children can go to college. In both cases, bankruptcy is not an option for these loans, and parents often have to liquidate assets in order to satisfy this debt.

Senior Citizens Losing Social Security Benefits

One increasingly common tactic used by guarantors and collection companies to extract wealth from student loan debtors is Social Security garnishment. Typically, this is an administrative action; in other words, in the case of defaulted student loans, no court order is required to attach a senior citizen’s benefits. Federal disability income can also be garnished in this manner.

Private student loans have exploded to rival federally guaranteed loans in the industry. In a few short years, they have grown to encompass nearly a quarter of the entire industry, and the airwaves are saturated with ads for these dangerous debt instruments. Many students make the mistake of applying for private loans instead of federal loans because they are attracted to the ease and quickness of the application process. However, the ease of applying can come at a great, often ruinous cost. Interest rates can be astronomical, and, like federal loans, the bankruptcy protections for private loans are extremely limited. This makes the lenders far less willing to negotiate with students facing financial difficulty.
Students often fall into the trap of these private loans and are led to believe that they are standard loans. Many do not understand the terms of the loans when they sign, and they find out only after it is too late that they agreed to interest rates of 18 percent, 20 percent, or more. The interest on these loans alone is sometimes more than half a student’s income after graduation. Moreover, parents often cosign these loans, and this puts their assets and credit scores at great risk. If you are facing a similar situation in life an experienced Park City Utah bankruptcy lawyer can help you.

Use Federal Loans First

Federal loans are always, without question, the more beneficial types of loan. While private lenders advertise heavily on campus, on the radio, and on television, private loans are never better than federal loans. Federal loans always have lower interest rates (set by Congress). Many are subsidized, so that the interest is paid while the student is in school. Federally guaranteed loans also have more flexible repayment options and federally mandated deferment and forbearance programs, which private loans do not offer.2 Also, for federal loans, there are at least some circumstances in which loans can be forgiven, including the death of the student, total and permanent disability of the student borrower, school closure, and others. If a student’s financial aid package falls short of covering costs by using just federal loans, then that student should give serious consideration to attending a less expensive college.
Learn about the Impact of Defaulting on Loans

Prior to Obtaining Them

Most defaulted borrowers had no idea that student loans could not be refinanced after consolidation, were largely exempt from bankruptcy discharge, and had no statutes of limitations for their collections. The vast majority of defaulted student borrowers also were never told about the massive penalties and fees that would be attached to their loans if they defaulted; they had to find out the hard way, after it was too late. No mention was ever made to them that their professional licenses could be suspended and their income tax returns, wages, and Social Security income could be seized as a result of their defaulting on their student loans.
Until consumer protections are restored to education loans, and until Congress puts an end to the ruthless collection tactics employed by the student loan collection industry, students are well advised to educate themselves about these facts.

Graduation: To Consolidate or Not

Graduating from college or leaving school for other reasons represents a critical juncture with regard to student loans. It is here that the most students consider whether or not to consolidate their loans, which means bundling loans into a single loan with a new (or the same) lender. The interest rate for consolidation loans is the weighted average of the original loans rounded up to the nearest eighth of a percent. For federally guaranteed loans (such as Stafford, PLUS, and so forth), consolidating loans is allowed only once; therefore, after a student consolidates, he or she is stuck with that lender for the life of the loan. Of course, if a borrower takes out an additional loan, consolidation can occur again, but it is not advisable to take out a student loan for the sole purpose of consolidation, although perhaps leaving a small loan out of the consolidation would be a prudent action to take to preserve the option of refinancing later.

For federal loans, companies often offer some discounts for consolidation, such as interest rate reductions for on-time payments and automatic withdrawals, but only a minority of borrowers actually receive these benefits throughout the life of the loan. For one reason or another (for example, a missed payment or a late payment), these benefits are taken away from perhaps 90 percent of borrowers. In fact, most borrowers who lose prompt payment discounts do so on the very first payment.

Also, consolidation of loans often results in the loans being changed from subsidized to unsubsidized. This can have a significant effect on the borrower if a deferment is required in times of unemployment or other periods of financial distress, since the government pays the interest on the subsidized portion of the loan during deferment (but not forbearance). Borrowers should prefer deferments over forbearances and try to pay at least the interest during a forbearance to keep the loan balance from growing.

It cannot be emphasized enough that under current federal law, consolidation of student loans represents the last opportunity the student will have to shop his or her loans around to find the best terms. Until federal law opens up the marketplace to more competition and provides borrowers with the freedom to refinance the debt, borrowers must do as much research as possible on this prior to consolidation so they are able to make informed decisions based on the range of possible scenarios that might befall them. Web sites like FinAid.org provide current information about borrower discounts available for student consolidation loans. FinAid.org also provides a wide array of cost and repayment calculators that the borrower would do well to try before making any final decisions about loans.

Loan Forgiveness for Public Service

For people who have a large amount of debt and who plan on entering public service after graduation, a new program passed into law with the College Cost Reduction and Access Act of 2007 may be the only way to pay off student loan debts in a reasonable amount of time. It is the public service loan forgiveness program, and it forgives the remaining balance of Direct Loans after 120 payments are made. There is a requirement, however: borrow ers must be employed full-time in a public service job while repaying the debt. This includes working for federal, state, or local government, 501c(3) nonprofit organizations, law enforcement, and other positions as defined by the new legislation.

This program is very attractive for new graduates who have high debt loads and career aspirations in the public sector. However, the borrower must have a loan through the Direct Loan Program, which means that FFELP borrowers have to consolidate their loans into this program. The program is also attractive in that an income-based repayment plan or income-sensitive contingent repayment plan can be used throughout the term. It does have its risks also, though. For example, under current law, the amount that is forgiven at the end of the ten-year term is counted as taxable income. This could be a very large amount, depending upon the original debt load of the borrower and his or her income during the repayment period. Here is another risk: borrowers who decide after a few years of repayment that public service isn’t for them may be worse off than when they started, since any unpaid interest is capitalized.

For defaulted borrowers whose debt loads have already skyrocketed and whose earnings are low, this taxable event could prove to be devastating. Other problems exist with the service forgiveness program from the perspective of longtime defaulted borrowers and are described in the previous chapter. For defaulted borrowers in this circumstance, unfortunately, there simply are no workable options under the current law that would allow the debt to be satisfied in a reasonable amount of time.

If you are overburdened with student loan debt and you are unable pay it off along with other debts, consult an experienced Park City Utah bankruptcy lawyer.

Park City Utah Bankruptcy Lawyer Free Consultation

When you need debt relief to stop a garnishment, get a repossessed car back or help to have a fresh start, please call Ascent Law LLC (801) 676-5506 for your free consultation. We can help you file a chapter 7 bankruptcy. Chapter 13 bankruptcy. Chapter 12 Bankruptcy. Chapter 9 Bankruptcy. Chapter 11 Bankruptcy. Help with a Loan Modification. And Much More. We want to help you.