Tennessee student-loan burdens and possibilities for relief
It’s no secret that college tuition has skyrocketed at astounding rates in recent years, leaving many students deeply in debt after graduation. The sluggish job market for recent grads leaves many of them unemployed or underemployed, making repayment impossible for some.
According to U.S. Department of Education data, federal student loan default rates are rising. For example, during years one and two of student loan repayment periods, 8.8 percent of loan holders defaulted in the agency’s 2009 fiscal year compared with 9.1 in the 2010 fiscal year.
WTVF-TV in Nashville recently reported default rates for graduates of some Tennessee schools. Some of the highest are Martin Methodist College with 26.6 percent and Nashville State Community College at 21.8 percent, compared with some of the lowest among graduates of Vanderbilt University at 2.1 percent and Belmont University at 4.1 percent.
After graduation, most student loan contracts provide for a grace period so that you have some time to get settled before payments become due. But if the grace period is not long enough and you start to have trouble making payments, don’t wait until you are in default to try to work with the lender. Contact them early to see if you can work out a payment plan. Sometimes you may be able to suspend the payments due on your loan with a deferment or forbearance in certain circumstances like unemployment or military deployment.
Student loans can be either public usually through the federal government, or private through a bank or other private financial institution. A federal student loan is considered to be in default when the borrower makes no payments for nine months, at which time the entire loan is due. However, if you are delinquent in your payments, contact the lending agency right away to discuss whether any alternatives are available considering your financial hardship.
The federal government has extensive student-loan collection powers and can charge steep collection fees. Amazingly, there is no deadline for collection – you could be liable for an outstanding student loan indefinitely and at any age. The government may be able to collect on defaulted student loans by:
- Seizing your tax refunds
- Taking a fraction of certain government benefits like Social Security payments and a few others, but not all types
- Garnishing part of your wages without a court order
- Bringing a lawsuit and trying to seize certain property under applicable state law if a judgment is entered against you
In addition, some states’ laws allow refusal, suspension, restriction or revocation of certain professional licenses (lawyers, teachers and so on) if the holders are in default on their student loans. The license restrictions vary by state. Tennessee is one of the states with such restrictions, according to the National Consumer Law Center.
Private lenders most often use lawsuits to try to collect on student loans.
Student Loan Discharge
It is difficult to get a student loan cancelled or discharged. A few narrow situations that vary with the terms of the loan and whether it is public or private may allow this including:
- Your school closed before you were able to get a degree
- Identity theft
- Total and permanent disability
- Certain public service programs like teaching or Peace Corps service
- State tuition recovery funds in some states, including Tennessee
- Personal or family harm from the 9/11 attacks
Student loans are very difficult to get discharged in bankruptcy. The debtor almost always has to show that repaying the loans causes “undue hardship” on him or herself or on dependants. Federal courts interpret whether undue hardship exists on a case-by-case basis and the standard varies by court.
Another option may be to file a Chapter 13 bankruptcy and pay a reduced monthly amount toward student loans during the debt repayment plan period.
Clearly, the law surrounding student loans is complex. Legal advice from an experienced bankruptcy and consumer rights attorney is important to determine what the best steps are for any individual struggling to meet student-loan obligations.