College students in Georgia and all across the country frequently face difficult decisions about their futures, including whether pursuing higher education is worth the cost. Often, these important decisions land them in a "catch-22."
On one hand, young adults are told that they need to go to college to further their education in order to land a good job and get ahead in life. But, on the other hand, the rising cost of college tuition combined with a troubled economy and job market can leave many college graduates underemployed or unemployed with few job prospects while they are saddled with many tens of thousands of dollars of student-loan debt.
Understanding that students may be placed in very difficult economic positions after graduation, President Barack Obama recently announced new student-loan debt rules designed to make college "more affordable" and student-loan repayment more manageable.
New Pay As You Earn Program
A White House release announcing the new program, called "Pay As You Earn," described the program as essentially an acceleration and modification of income-based repayment (IBR), which was passed in 2010 and is set to begin in 2014. The program could help 1.6 million current college students.
Under the current rules, student-loan repayments can be capped at 15 percent of the borrower's discretionary income, and student-loan debts can be forgiven after 25 years. Beginning in 2012, the new Pay As You Earn program allows student loan payback to be capped at 10 percent of a borrower's disposable income, and after 20 years of repayment, the borrower's remaining student-loan debts will be forgiven.
In addition, the new program will allow student-loan borrowers to consolidate their U.S. Department of Education loans with private-sector loans issued under the Federal Family Education Loan Program (FFELP) into a single monthly payment. Borrowers who take advantage of debt consolidation may be eligible to have their interest rates lowered by 0.5 percent.
The White House estimates that approximately 5.8 million borrowers would benefit from consolidation. It also estimates that the new program could lower some students' loan repayments by hundreds of dollars per month.
Does the Program Help All People With Student Loans?
Even though many students stand to benefit from the Pay As You Earn program, the Education Finance Council (EFC), an association that represents nonprofit and state agency student-finance organizations, is "disappointed" in the new program because it is only available to current students who received loans in 2008 or later and who will take out additional student loans in 2012, according to Reuters. Further, the group says that the length of time that students have to take advantage of the program, which is six months (January to June 2012), is "far too short."
Expressing its dissatisfaction, an EFC statement was quoted by Reuters as saying, "By focusing only on a limited group of students, the [new program] does little for borrowers struggling to repay student loans in today's distressed job market."
While the new program limits eligibility for student-loan relief, people currently struggling with student-loan debt have other options for improving their financial situations, including bankruptcy.
Typically, student loans are considered non-dischargeable in bankruptcy. This means that people who file for bankruptcy relief are still obligated to repay all of their student loans after the bankruptcy process is complete, unless they can show that the student loans present an "undue hardship" - which is done through a separate petition during the bankruptcy process.
Proving undue hardship, however, is extremely difficult. The test for proving undue hardship is three-pronged:
- A minimum standard of living cannot be maintained because of the student-loan debts.
- It is likely that the debtor's current financial situation will continue over a large portion of the repayment period.
- A good faith effort has been made by the debtor to repay the student-loan debts.
However, just because people may not be able to prove undue hardship to cancel student-loan debt through bankruptcy, that doesn't mean filing for bankruptcy relief is not an option for improving their financial situations.
People struggling with student-loan debt also may have other debts that bankruptcy can eliminate, diminish or restructure; debts such as missed mortgage or car payments, mounting credit card bills or expensive medical bills all may be discharged in bankruptcy. By eliminating these other debts through Chapter 7 bankruptcy or restructuring the debts through Chapter 13 bankruptcy, the overall burden of student loan debt on people's finances may be lessened.
Debt does not need to control your life. If you are struggling with credit card bills or student-loan debt or are starting to miss mortgage or car payments, speak with an experienced Georgia bankruptcy attorney about your financial situation. An attorney can help you learn about your options for debt relief and help you decide if bankruptcy is right for you.