Student Loans Need Bankruptcy Help

Let’s be serious about this problem, shall we?  Student loans need Bankruptcy help

Here we are on the precipice of a student loan Armageddon, and we’re pushing vegetables around the plate, throwing out ridiculous discussions about refinancing options while not doing what needs to be done to eliminate this financial scourge that threatens millions of Americans.  I’ve discussed the fact that Student Loans are almost impossible to eliminate in a Bankruptcy, although there are some who disagree with me.  In our NYC Bankruptcy office, we deal with so many individuals that want to file for Bankruptcy to get rid of their student loans but can’t.  So what now?


What you’ll see below is an example piece-meal, broken, absolutely ridiculous approach to try and deal with a student loan crisis.  With over 1.2 Trillion (thats Trillion-like Rick Ross says) dollars in student loan debt outstanding.  The answer isn’t refinancing, or “educating our students about loans”. That’s stupid and it doesn’t deal with the underlying problem. Student Loans need to be forgiven and dischargeable in Bankruptcy.  And there needs to be a secondary market for student loans without private lenders that service those loans.  Why? Because ACS Education, one of the nation’s top servicers of federal and private student loans, has a C- rating with the Better Business Bureau.  Because “University endowments and teachers’ pension funds are among big investors in Sallie Mae, the private lender that has been generating enormous profits thanks to soaring student debt…” Because the Uncle Sam knew that Sallie Mae was allegedly cheating active duty military service members on their student loans, but renewed their Contract anyway. That’s it.  That’s the end of it.


So, how is our government dealing with this problem? Not by providing Bankruptcy help

Here is a breakdown of the most recent “Congressional attempts to deal with the Student Loan Crisis:

  • Speaker John Boehner:
    “The White House and Senate Democrats have let these students down. And frankly, I think they deserve better.”  — Awesome.
  • This from  “A handful of senators struggled Thursday to hold together a bi-partisan deal to keep student loan rates from doubling on July 1 while their colleagues traded political barbs with little more than a week to go before the deadline.”
  • Elizabeth Warren, who I genuinely love (she once responded to an email from me so that’s why I love her…keep judging!) put forth a new plan surrounding student loans.  The lede for Slate, the obvious fair right leaning website that it is (side of sarcasm), was Elizabeth Warren’s Smart, Flawed and Obviously Doomed Plan to Help Student Borrowers.  Let’s hear it for partisanship and problem solving!  To put the above into perspective, I have done real estate deals for underemployed individuals buying properties with an FHA mortgage at around 4%.  Think about that for a second.  Let it marinate.


But here’s the real rub-we’re only dealing with federal student loans here.  We’re not so much as discussing private lenders.  How much do private lenders own?  Well, from 2007-2010, the private student loan market place grew about 25-35% PER YEAR, compared to about 8% for Federal student loans.  The mafia is in awe of these guys.  But, you have nothing to worry about if you’re paying your private student loans on time.  Nothing unless your co-signor dies or files for Bankruptcy, which, yes, has nothing to do with you but you’re just going to have to pay up that entire amount you owe right now, k?  This is known as “auto default” and so LOL because you haven’t actually defaulted, but semantics and whatevz….


Obviously these aren’t real answers to real problems we face.  In Part II, I’ll discuss why Bankruptcy is really one of the most important tools we have of dealing with this problem.