Search

TIRELLI TWO-CENTS: STUDENT LOAN DEBTS SHOULD BE DISCHARGABLE IN BANKRUTPTCY



Bankruptcy lawyer here…student loans are consumer debts and should not be receiving special treatment. Prior to the year 1978 student loan debts were fully dischargeable in personal bankruptcy. The rules changed and restrictions were put on the discharging of student loans including a test for "undue hardship" and passage of a certain number of years and then if the borrower was in over his/her head, they got a fresh start through bankruptcy. It also was a time (prior to 2000) when lenders didn’t give out as many loans and schools didn’t inflate fees and tuition.


Student loans have since been made non-dischargeable, the amount of loan debt skyrocketed because lenders knew students would get hooked on the easy funds - like bank crack- and lenders also know the consumer borrowers have no way out of the debt. Schools, of course, pushed the students towards the easy-to-get loans, raised fees and tuition, and the schools got paid first making money hand over fist. When a student graduates and moves on, that undergrad school was paid in full. The student is stuck with often a useless degree, an unscrupulous lender and collection agencies.


I suggest -loudly - that instead of the Biden administration pushing for the forgiveness of $10-20K of student loan debt for certain people (not everyone qualifies) forcing the financial burden on the taxpayers, why not discuss making the loans dischargeable once again under the bankruptcy code?


A discharge in bankruptcy would mean no burden pushed on taxpayers and lenders will need to be more responsible. I predict that the lenders will not give an absurd abundance of money to students - and schools will have to lower tuition. Seventy-five thousand dollars per year at Syracuse University for a degree in sociology where the graduate takes on $280,000 in debt for a useless degree that won’t start with more than $40,000 per year salary is outrageous. The schools know it the lenders know it - we all know it! There is no reason why student loan debt should not be treated the same as other unsecured consumer debts under the bankruptcy code. The loan industry, in turn, will regulate their lending practices accordingly.



I’m scrolling through my feed on FB and see all the pics of Poopsie going off to college. I’m wondering how many parents got suckered into signing “Parent Plus Loans” to get Poopsie into Northeastern for $60,000 per year. And that is despite the fact that Poopsie has no sense of financial literacy and no clue what they want to be when they grow up so she will take easy classes and have fun at twofers night in a college bar and sorority socials.


All of You parents signing Parent Plus Loans may be committing financial suicide….


Fun fact…. Social Security is untouchable to consumer creditors EXCEPT for student loan debts. (Yup more special treatment!) That means the lender can attach your social security income to collect. By law, Social Security can take retirement AND disability benefits to repay student loans in default. Social Security can take up to 15% of a person’s benefits. However, the benefits cannot be reduced below $750 a month or $9,000 a year. Supplemental Security Income (SSI) cannot be offset to repay these debts. This comes into play when all these foolish parents sign off on Parent Loans feeling forced into it. Many think “Oh I’ll be retired in 15 years after Poopsie graduates and not have to pay it back”

Wake the hell up! The reality is, there is no way to borrow for retirement and signing a Parent Plus Loan or co-signing a student loan means you are putting your social security at risk.


I tell parents - and I took my own advice with my own kids- NEVER NEVER EVER sign for a Parent Plus Loan or co-sign a student loan because it puts the parent on the hook much closer to retirement than the student. Parents can always help repay student loans without legally obligating themselves as co-signers or with Parent Plus Loans.


More fun facts about school choices - if it’s not Ivy League - it’s all the same. So, if Poopsie doesn’t get incredible scholarships, send Poopsie to a state school for undergrad. I graduated SUNY Albany ‘90 (dual major Political Science & Criminal Justice) and my kids both graduated from SUNY. My older child went on to a top tier law school and both kids are gainfully employed living independently. I never signed a single parent plus loan.


We need to stop the insanity with student loans and exorbitant cost of useless undergrad degrees. Bankruptcy discharge should be an option for anyone who for unforeseen circumstances are unable to pay and no lender should be able to attach social security and disability benefits.


That’s my 2 Cents!