You can discharge your student loan obligation . . . if you die or become quadriplegic

by Grace

Megan McCardle wrote that Elie Mystal at Above the Law gave a false impression that it is not uncommon for student loans to be settled for cents on the dollar.  The reality is quite different.

No student loans, not even the private ones, can be discharged in bankruptcy.  As a result, all the personal finance experts I’ve ever listened or talked to say that they’re incredibly hard to get rid of….

A collector for normal sorts of unsecured debt is always working with the threat of bankruptcy in the background; if you try to hold out for full repayment, the debtor can always file Chapter 7.  In most cases, that means that unsecured creditors get nothing.

So student loan liabilities should be taken very seriously.  They will survive bankruptcy, which gives private lenders the leverage to push for full repayment.  As for federal loans, government policies mean it will get its money back unless the borrower dies or is severely disabled.  One of McCardle’s commenters put it this way.

… And the “hardship” provision through the DOE is largely “so you are a quadriplegic? Well, maybe we’ll give you a hardship discharge …”

The series of posts that Mystal and McCardle wrote (linked below) were full of lively discussion and included many good details.  The bottom line is that you should not treat your student loan obligations casually.  Your chances of ever discharging this debt are highly unlikely.

Student Loan Debt: What’s the Worst That Could Happen?

Don’t Count on Settling Those Student Loans

Student Debt: The Bad Thing I Forgot To Mention

Student Loan Settlements, Revisited

Should We Care if People Don’t Pay Their Debts?

Kids, Get High Off Drugs, Not Debt. It’s More Fun And People Are Nicer To You When It’s Time To Recover

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3 Responses to “You can discharge your student loan obligation . . . if you die or become quadriplegic”

  1. There have been several newspaper articles on how your student loan debts survive your death. I don’t know if it’s the small student only loans, too, or the bigger loans that parents co-sign for. Definitely on the ones that are co-signed the lender will come after the co-signer even if the original borrower is dead.

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  2. That’s a good point, Jo. It is my understanding that federal loans are discharged upon death of the borrower, whether that’s the student or the parent. For private loans, the lender will go after the estate or any co-signer to collect.

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