Thursday, June 07, 2007

Bankruptcy: The Big Guns

My second Higher Ed Watch post, on bankruptcy exemptions for student loans.

"If you leave them so thoroughly in debt even after bankruptcy that they can't get back on their feet and they are driven into the underground cash economy and not into the career they trained for, the taxpayers don't get anything."

Andrew Davis, Chief Executive Officer of The Illinois Student Assistance Corporation told The Chicago Sun-Times in May.

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One of the reasons our debt-based college aid system puts up barriers to college access is that student loans are treated differently under the law than any other unsecured debt.

In the case of a defaulted student loan, student-loan guarantee agencies can garnish your wages without even taking you to court, and the government can seize tax refunds, federal disaster relief payments, and Social Security retirement and disability benefits without a court order.

The big gun in the student lender's collection arsenal is the bankruptcy exemption. Since 1998 federal student loans have been not been dischargeable in bankruptcy except in extremely rare circumstances of "undue hardship," determined at the discretion of a judge.

2 comments:

Steve said...

I graduated in 1999 from The School of the Art Institute of Chicago with an MFA in Painting. Due to debt I had while in school, the debt of a private loan plus my Federal SAIC loans, and the difficulty of getting a teaching job, I found myself in trouble two years after graduating. I declared Chapter 13 bankruptcy. This relieved me of all other debt except the private loan and the Federal loans, which are of course exempt from bankruptcy.

Now after finishing my bankruptcy program, though which I paid my private loan debt, my Federal loans are due beginning in August. They accrued over 20k in interest alone while I paid my bankruptcy. They total now over 62k. My first payment is supposed to be 710.00. Impossible.

Advice, please.

I had heard of an Income Contingent Repayment Program. But if anyone knows of any other strategies, I'd like to know.

This threatens to indefinitely subvert why I went to school.

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