As we have discussed on this blog many times, student loans can be a financial thorn in the side of many debtors. There are nearly impossible to discharge and they eat away at debtor’s assets for years after they’ve graduated from college. But there’s something else fishy about student loans that many students need to be wary of…private student loans. Many students assume that when they take out a student loan that they are getting a federal loan but that’s not always the case and you need to read the fine print because the difference can be dangerous to your financial health.

Federally guaranteed student loans have fixed interest rates, currently 6% to 6.8%. Private student loans on the other hand have interest rates comparable to a subprime credit card, running 15% or more and that’s not including the fees they hit you with.

Students need to be cautious and avoid private student loans; they are costly and can destroy you financially. It is unfortunate that students, some as young as 18 years old are not being told about the true costs of student loans upfront before they sign the papers. The government requires other lenders, such as mortgage lenders and car financers to fully disclose the true cost of the loan before the borrower signs any papers, why not students?

If you are a student or recent graduate overwhelmed by student loan payments and other debts contact a bankruptcy attorney today to find out how you can reorganize your debt and maybe even discharge some non-student loan debt in bankruptcy. Taking action now may make it easier for you to repay your student loans and protect more of your assets.

Anyone who has taken out student loans for college and experienced financially trying times knows that student loans cannot be discharged in bankruptcy unless they cause an “undue hardship” to the debtor, which means rarely. But what about unpaid tuition, can unpaid tuition be discharged in bankruptcy? Well under normal circumstances, yes tuition can be discharged in bankruptcy. Let’s take a look.

If a debtor goes to school and simply fails to pay tuition, then mostly likely the debt can be discharged in bankruptcy. For example, if the school allowed a student to attend classes and not pay at all and then later attempted to collect the money, this type of tuition debt may be discharged in bankruptcy. But, if a student signs a promissory note with a school or the school gives the student money, this debt may not be dischargeable in bankruptcy. In this case the bankruptcy courts consider the debt a “student loan.”

If you’re considering bankruptcy and have unpaid tuition debt, speak to a bankruptcy attorney to determine if this debt is dischargeable in bankruptcy.

Students filing for bankruptcy often receive thousands of dollars in student loan money for their tuition, books, fees and living expenses. Since this is often their only source of income, many students are afraid to file for bankruptcy because they believe that their student loan money can be used to repay creditors in Chapter 7 or Chapter 13 bankruptcy. Fortunately for students, student loan money is protected from garnishment by creditors and cannot be used by a bankruptcy trustee to repay debt. Therefore, even if a student files for bankruptcy while thousands of dollars in student loan money is in their bank account, that money is still exempt under the bankruptcy law. There is no exemption limit for student loan money, so it does not matter how much student loan money is in the debtor bank account.

If you are a student considering bankruptcy, discuss your student loan exemption with a Dallas-Fort Worth bankruptcy attorney to determine whether you should file a Chapter 7 or Chapter 13 bankruptcy and how you can best protect your student loan proceeds.

For those debtors who cannot discharge their student loans in bankruptcy, it is important to pay as much as possible on the student loans while in Chapter 13 bankruptcy. One way a debtor can commit more of his/her income to repaying student loan debt while in Chapter 13 bankruptcy, is to repay the loans on their own instead of having the bankruptcy trustee pay on their behalf. A debtor can simply have their bankruptcy attorney insert the following provision into their Chapter 13 bankruptcy plan:

"The debtor will continue to pay student loan payments out of his/her own pocket instead of having the bankruptcy trustee pay on his/her behalf."

Putting this provision into the debtor’s Chapter 13 bankruptcy plan usually allows the debtor to pay more income towards the student loan debt than would be paid if it was handled by the bankruptcy trustee.

The bankruptcy law allows debtors to continue to pay their student loans out of their own pocket; a method of paying that insures that the debtor will not owe accrued interest, saving money in the long-run.

Anyone who has ever taken out a student loan is quite aware of the fact that student loan debt is next to impossible to discharge in bankruptcy unless the debtor can prove “undue hardship.” But the 9 th Circuit Court ruled in October that student loan debt could be discharged through the confirmation of a Chapter 13 plan if the creditor is given notice of the plan and does not object, (Espinosa v. United Student Aid Funds Inc., No. 06-16421, 9th Cir. 10/02/08).

The court stated:

“Our long-standing circuit law holds that student loan debts can be discharged by way of a Chapter 13 plan if the creditor does not object, after receiving notice of the proposed plan, Pardee, 193 F.3d at 1086, and that such notice is not constitutionally inadequate. In re Gregory, 705 F.2d at 1123. We find it highly unlikely that a credi­tor whose business it is to administer student loans will be misled by the customary bankruptcy procedures or somehow be bamboozled into giving up its rights by crafty student debtors. If the creditor fails to object, it is doubtless the result of a careful calculation that this course is the one most likely to yield repayment of at least a portion of the debt. In such circumstances, bankruptcy courts have no business standing in the way. Cases such as In re Webber and In re Patton are, to that extent, overruled.”

Although this ruling should not be considered an open door for all who want to discharge student loans in bankruptcy; it is a long overdue relief for debtors who are burdened by massive student loan debt. If the Chapter 13 bankruptcy trustee has examined the debtor’s ability to repay his/her student loan debt and has determined that the balance of the student loan should be discharged in Chapter 13 bankruptcy, then it is up to the creditor to accept or dispute the ruling. No special provisions should be given to student loan creditors who do not follow bankruptcy proceedings and challenge discharge rulings according to the law.