• 02
  • August
    2011

As many as two thirds of students who have gone through higher education graduate with debt. Since 2008, more than 500,000 have defaulted on their student loans. On average, graduates come out of school with $24,000 in debt to pay off. Some students carry significantly more. Roughly 7,000 students come out of school with at least $100,000 in debt every year.

That debt can often become burdensome on graduates, especially with the difficulties many graduates experience in finding work. For many who find they are unable to manage the debt, bankruptcy often becomes their last option. Unfortunately, student loans are not particularly easy to discharge in bankruptcy.

It used to be that student loans were dischargeable in a number of situations, but they are generally hard to discharge in bankruptcy nowadays. Courts require filers to prove that paying off their student loans would be an "undue hardship" for the filer and his or her dependants. The way undue hardship is determined varies by court.

If the court finds that there is an undue hardship for the filer, student loans will be discharged and collection actions from creditors will be ended, at least for the duration of the bankruptcy. If the filer is unable to show undue hardship, there are still advantages bankruptcy will bring in terms of repaying student loans. One example is that, because the court sets the repayment amounts for the duration of the bankruptcy, they will be easier to manage during that time.

Bankruptcy is never an easy decision. On the one hand, it will reflect poorly on the filer's credit score and require hard work to rebuild credit. On the other hand, it may be the only reasonable option left. It is important to speak with an experienced attorney before making a big decision like filing for bankruptcy.

Source: CBS News, "Declaring bankruptcy doesn't ease student loans," John Blackstone, 31 July 2011.