We have all received those phone messages about the potential to alleviate our student debt, with that automated voice sounding so hopeful at the potential of wiping tens of thousands of dollars from your plate. There is also the potential for various careers to have the ability to release their student loan debt, primarily those in the educational field.
However, there are further questions that are being raised in how there may be ways to at least lower your student loans with certain financial methods. One is the question of bankruptcy. It’s one of the most googled student loan questions: Can you discharge your student loans in bankruptcy? The quick answer is that student loans typically are not dischargeable in bankruptcy. However, there are exceptions. And here are the many things that you need to know.
Student Loans: Why Student Loans Traditionally Cannot Be Discharged In Bankruptcy
As many borrowers struggle to repay student loan debt, bankruptcy is one strategy that gets offered as a potential option. According to Make Lemonade, there are more than 44 million borrowers who collectively owe $1.5 trillion in student loan debt in the U.S. Student loans are now the second highest consumer debt category – behind mortgages, but ahead of credit card debt.
Unlike other types of consumer debt such as credit card and mortgages, student loans traditionally cannot be discharged in bankruptcy. In 2005, Congress passed, and President George W. Bush signed, the Bankruptcy Abuse Prevention and Consumer Protection Act, which exempted federal and private students loans from discharge.
Additional Changes Coming
Unless you’re lucky enough to come from a well-off family or gifted enough to earn a full-ride scholarship, taking student loans was a necessity for you to afford your college education. The amount of student loan debt carried by the graduates of the class of 2017 averaged to $39,400 per student, and the total amount of debt carried by Americans totals more than $1.48 trillion.
While student loan debt will continue to plague the lives of millions of Americans in 2019 (with the exception of those somehow able to pay down the debt), anyone who still owes money—or who is currently shopping for a loan—should pay attention to the following economic trends and political promises so they understand how their student loan payments may change in 2019.
Higher federal student loan interest rates
The interest rates on student loans given by the federal government change annually on July 1, and in 2018 they increased by 0.6%. That’s because student loan interest rates are based on the Treasury Department’s 10-year Treasury note auctions. The government then tacks on interest above and beyond the Treasury note interest rates.
The Fed raised its key interest rate four times in 2018 and projected two increases this year. Watch for an announcement in May to learn what the 2019-2020 student loan interest rates will be.
Higher interest rates on variable rate student loans
If you have variable rate student loans, expect your monthly payments to go up in 2019. That’s because rates on private student loans are typically tied to the ICE LIBOR (Intercontinental Exchange London Interbank Offered Rate) or the 10-year Treasury yield. The Fed already raised its key interest rate four times in 2018 with two increases in 2019 and LIBOR forecasted call for rate increases in March 2019 and beyond.
If you take out a new student loan, consider a fixed interest rate one instead of a loan with variable interest until ICE LIBOR and 10-year Treasury yield rates plateau or start going down.
A Dramatic Downturn in Loan Forgiveness
In late 2018, Education Secretary Betsy DeVos lost a court battle that resulted in the federal government canceling thousands of borrowers’ federal student loans, but don’t expect the Department of Education to advocate for student loan forgiveness in 2019.
At the very least, if you apply for debt relief through the Department of Education, expect longer processing times. The agency has no employees working full time to address complaints from borrowers, yet there are more than 139,000 pending claims, according to the latest Education Department’s data.
Even those who work for the government or a qualifying nonprofit can’t count on the Public Service Loan Forgiveness program to bail them out of debt. Since the program’s inception in 2007, more than 40,000 applications have been sent by qualifying borrowers who believe their loans should be forgiven, with only 206 getting what they want.
Repayment plan changes?
President Trump has consistently been a proponent of changing student loan repayment plans. During his 2016 campaign, he proposed combining the Pay As You Earn (PAYE) and Revised Pay As You Earn (REPAYE) into one plan in order to simplify repayment options.
The president has also been a strong advocate of changing the income-driven repayment system. In his 2019 budget proposal, borrowers would have needed to pay 12.5% of their income but would have received forgiveness after 15 years for undergraduate and 30 years for graduate borrowers.
Currently, borrowers using the income-driven repayment plan receive forgiveness after 20 to 25 years of successful payment on the loan and usually pay around 10 percent of their income toward their loans.
While it remains to be seen what the 2020 budget will hold, borrowers can reasonably expect the president and Congress to put forth proposals that include changes to repayment options when it comes to student loans.