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Student Loan Questions Answered for Graduates

by Lewis Roberts, Florida Bankruptcy Lawyer

Recently, I was asked to answer some questions for an upcoming article on student loans.  Below is the excerpt to be published.

Do you have any tips for a working college freshman who has just taken out student loans? Should they aim to start saving to pay their loans back right away?

​If they are able to save to pay student loans back after school, then is it possible for the same student to pay for school as they go and never take out the loans to begin with?  Then that is certainly a better option.​  To make some sort of lump sum payment on the loans after graduating to reduce the total balance, or eliminate some of the loans, may or may not help with total payments based on the graduate’s income and total debt amount.

Will Obama’s new sympathetic approach to student loans direct companies (such as Sallie Mae) to take a more compassionate stance on loans, rather than forcing former students to give up money they don’t have?

​Sallie Mae is a servicer of federal loans and also is involved in private loans.  So when someone says their loans are with Sallie Mae, one has to be careful of what advice to give.  It doesn’t apply to both federal loans and private loans.  Under Obama’s expansion of PAYE​ (Pay As You Earn), it caps payments to 10% of disposable income under income driven repayment plans.  But this does not apply to private loans.  So if Sallie Mae holds a graduate’s private loans, they aren’t under any obligation to be more compassionate.  As to qualifying for PAYE or other income driven plans, there is no compassion involved.  A graduate either qualifies for the lower payments or they do not.

Do you think that students are properly educated about all of their loan options before starting college?

​Absolutely not, especially when it comes to private loans.  It is easy money to borrow with promises of higher incomes to pay it all back later.  Unfortunately, not everyone knows the reality of the burden of paying back student loans.  Even schools are shutting down now because the default rates on the loans were too high.  Look at Corinthian Colleges and even Thomas Cooley School of Law not admitting first year law students at their Ann Arbor campus.​

What is your opinion on the newly proposed Democratic bill in which students will be able to pay back their loans at lower interest rates? Do you think this bill will eventually get passed?

​If you are referring to Senator Warren’s bill, it was already shot down.  But her bill only helped a small minority of graduates who were current on their student loans.  The major problem are people who are not able to pay their federal and private loans.​

If you are referring to Senator Harkin’s bill to allow dischargeability of private student loans in bankruptcy, I don’t think that has a chance of passing during midterm elections.  Maybe not at all with the current Congressional makeup.  There would have to be serious compromises in any bill to get dischargeability to pass (absent a hardship).

Is it truly possible for a former student to dig his/herself out of terrible student loan debt without declaring bankruptcy? 

​It certainly depends on how much is the total debt, what sort of income the new graduate is earning, whether the loans are federal, private, or a mixture, as well as other factors.  It is hard to determine and certainly on a case by case basis. Certainly someone who goes to an in-state school and only takes federal loans has better prospects of paying back their loans than someone who goes to an expensive private school and takes out private loans.​

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