When couples decide to end a marriage, the process involves division of the good (the assets) the bad (the liabilities) and the ugly (liabilities that exceed assets). Hearing officers whom we have spoken with report that they are seeing more cases where the controversies are ugly. A decade ago, the battles were typically about overleveraged homes that were “upside down” (debt far exceeding market value). The growing economy of the past decade has fixed many of those problems, but, for the past generation, we have seen a relentless growth in student debt.
Student loan debt presents its own special problems. For the most part, like secured debt (e.g., mortgage debt) it really resists discharge in bankruptcy. We have learned in recent years that some discharges have been obtained, however, the general rule seems to remain that this debt may be structured, but it does not go away.
Most students incurring these debts are not married. But they have parents who are, and those parents often sign on either as primary borrowers (it’s the parents who took the loan), or as guarantors (the child is primarily liable but if the child doesn’t pay the lender has recourse against the parents who guaranteed the loan(s)). We have found that most adults sign the loan documents without a clear understanding of who is obligated and how. After all, education is a necessity, right? So you do whatever it takes.
Once documents are signed, it is tough to emerge from the student debt swamp. The three boats out are named: Restructure, Forbearance and Discharge, with the third boat being the most difficult to find. Nevertheless, with 45 million Americans occupying parts of the student debt swamp, people are looking for a means out. The smartest folks evaluate the swamp before going in.
Listed below are some resources that may help. Realize that divorce courts don’t have jurisdiction to do much more than allocate the debt they are presented with. In addition, if you are a co-borrower or co- guarantor of a debt, the fact that the divorce court assigned the debt to your spouse in equitable distribution does not affect whether the lender can come after you. So navigate carefully if you are about to enter the swamp, and take a look at these resources.
Studentaid.gov: is a creature of the US Dept. of Education. It has both information and a guide for loan management, including a loan simulator that permits the borrower to “try on” different payment plans.
Be cautious as you navigate through these sites. Some are heavily oriented toward managing your money as a means to better allocating funds to reducing student debt. That can be a useful tool but it does not change the payment plan. Be aware as well that there are many sites devoted to Public Service Loan Forgiveness, which only applies to people in some form of public service, and even those candidates encounter some pretty rocky channels of forgiveness eligibility.
There are attorneys and fee based services that also provide guidance. Just be certain whom you are dealing with. This is not something the typical lawyer will know how to manage. There is no harm in asking for references. We have seen happy results in the area of forbearance (pay less now based on low income). But, having sailed into the swamp, you want to make certain that you are not getting in deeper with a service or a lawyer who misdirects you.