This post is targeted to those who are planning on attending law school in the Fall of 2011. I have seen many posts on law school forums where students say they will file bankruptcy on their loans upon graduation. Here is the ugly truth:
The current legislative language, as amended by Section 220 of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), P.L. 109-8, effective October 17, 2005:
523(a) Exceptions to discharge
(8) unless excepting such debt from discharge under this paragraph would impose an undue hardship on the debtor and the debtor's dependents, for --
1. an educational benefit overpayment or loan made, insured, or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or nonprofit institution; or
2. an obligation to repay funds received as an educational benefit, scholarship, or stipend; or
2. any other educational loan that is a qualified education loan, as defined in section 221(d)(1) of the Internal Revenue Code of 1986, incurred by a debtor who is an individual;
Section 523(a) of the US Bankruptcy code effectively turns anyone who takes on student loans into a debt slave for life. If you manage to get a great paying job or start your own company then Section 523(a) means very little to you. However, if you go to law school and end up incurring 6 figure debt and can't find a job then your fucked. There is no way out unless you skip the country. God forbid you fail the bar several times as your loans will skyrocket even higher. Even in the event of passing there is no guarantee that you will find work. Just look at me, a first time Cal Bar passer that STILL has not been able to find legal work since graduating in May of 2009. But for my family's support my loans would have exploded higher. I was lucky.
Many others do not have this type of support and will struggle immensely. Just ask my graduating class how they are feeling right now. In fact, many of them REFUSE to even open up the letters from the loan servicers because the number is just so huge. Even attorneys that are currently employed are getting screwed as they are led to believe that the loans are structured like a mortgage that are meant to be paid off in a 10 year or 20 year term. The reality is that the vast majority of student loans are structured like a fucking credit card that have interest accruing DAILY!!! Even if you have a good paying job you must pay a percentage above the minimum payment which is greater than your interest rate. Otherwise the loans will either stay stagnant or possibly even grow. Its a shame that so few people that take on large amounts of debt have such a limited understanding of finance. I guess the sales job of making "millions" leads law students and college grads to believe that it will not be much of a problem.
Every year millions of young Americans graduate college and post grad with a ever increasing amount of student loan debt. Just recently, banks such as Citi and Chase have sold their student loan portfolios to Sallie Mae which in turn will sell the loans to the Department of Education. I'm sure that the banks are confident in their decision to sell off the pool of future toxic waste paper that will be in some form default for perpetuity.
Education is now a dirty business just like selling subprime loans was in the early 2000's. Please don't allow yourselves to be victimized by these charlatans. Many of you will decide to incur this debt despite the warnings that I and other fellow scambloggers have posted on a weekly basis. Borrower beware.