Student Debt Rises Causing Seniors to Fall Below Poverty Levels; Here's A Little Relief

by
Richard Fonfrias, J.D.
Chicago's Financial Rescue & Bankruptcy Lawyer
Fonfrias Law Group, LLC


$1,000,000,000,000 -- that' s one trillion dollars -- is the amount owed in federal student loans.

Bad news:
Most student loans cannot be eliminated in bankruptcy. And in addition to taking your Social Security benefits to pay down loans, the government can use other tools, such as seizing wages or tax refund dollars. This leaves some older Americans with benefits that fall below the poverty level. Now, the ...

Good news:
If you file a Chapter 13 bankruptcy (the repayment plan), I can protect you from student loan creditors as long as you are still in Chapter 13. So while bankruptcy won't excuse you from paying your student loans, it can defer your payments for as long as five years until you emerge from bankruptcy. This should make your recovery from money problems a little easier while you put your financial house in order. It can help you to avoid foreclosure if you own a house and avoid wage garnishment if you are working.

Here's what you want to avoid:
In one case, Rosemary Anderson, who testified on Capitol Hill in Washington, said she could be 81 years of age by the time she pays off her student loans, if she lives that long. She's now 57.

Many aging Americans are having a terrible time trying to pay back their student debt. Many expect to see their Social Security money garnished because they haven't been able to pay off their debts when they reach retirement.

The Government Accountability Office (GAO) reports that student loan debt for seniors has skyrocketed, partly due to the interest rates on the loans. In 2005, seniors owed $2.8 billion on student loans. In 2013, the debt jumped to $18.2 billion.

So while many people thought student loan debt was a young person's problem, the facts show that the problem cuts across all age groups, including seniors in debt with student loans.

Rosemary Anderson, who lives in Watsonville, California, had $64,000 in student loans in her 30s. She has worked several jobs at the same time in hopes of paying off credit card debt. She has renegotiated her home mortgage. Even so, she hasn't made a single student loan payment in eight years. She now owes $126,000, which makes it harder and harder to sleep at night.

She explained that while she took on the debt to improve her life. But now that debt has become her "undoing".

Today, many seniors who have student loan debt also struggle with medical problems, the loss of a job, or a divorce. And those who went back to school so they could earn a higher salary found that that didn't work out. Or that the children they helped pay for schooling, in return, cannot help their parents.

According to the GAO, roughly 80% of student loan debt held by seniors was for their own education, with the remaining 20% owed for their children's or other dependent's education.

The GAO has learned that the time required to repay student debt ranges from 10 yrs to 25 yrs. This means that some older American took out loans when they were younger and have now amassed a staggering amount of interest. While others took out the loans later in life.

In addition, the GAO discovered that about 25% of loans owed by seniors between 65 and 74 are now in default. The older students who had their Social Security benefits offset to pay on their student loans increased by a factor of 5, from 31,000 in 2002 - to 155,000 in 2013.

The GAO predicts that as baby boomers move closer to retirement, the number of seniors with defaulted loans will increase. This may shock seniors who learn that their Social Security benefits are offset to pay their loans, leading them to be less secure in their "golden years."

In most cases, student loans cannot be erased in bankruptcy. And besides taking Social Security benefits to pay down loans, the government can use other tools, such as seizing wages or tax refund dollars. This leaves some older Americans with benefits that fall below the poverty level.

Fortunately, this issue doesn't affect all Americans. But for those who owe the money, the problem can be overwhelming.

Here's what I suggest: If you file a Chapter 13 bankruptcy (the repayment plan), I can protect you from student loan creditors as long as you are still in Chapter 13. So while bankruptcy won't excuse you from paying your student loans, it can defer your payments for as long as five years until you emerge from bankruptcy. This should make your recovery from money problems a little easier while you put your financial house in order.