Student loans in Tennessee: when the burden becomes too great

In these difficult economic times, with college tuition skyrocketing and personal wealth strained, many college students need student loans to make higher education possible at all. The catch-22 for a student today: while a college education in theory makes a higher salary more likely after graduation, the hefty monthly payments toward student-loan debt can make home or car ownership, or even being able to cover basic expenses, difficult to impossible, even with a decent starting wage.

The Tennessean recently provided some interesting details about Tennessee students and their student-loan burdens. Actually, Tennessee students graduate with the fifth-lowest average debt burden of all 50 U.S. states. Just over half of 2011 Tennessee college grads have student-loan debt, with an average of almost $21,000 each.

According to WTVF-TV Nashville, citing the U.S. Department of Education, some Tennessee colleges' graduating classes have student-loan default rates as high as about 25 percent, varying greatly by institution. For example, the default rate for Vanderbilt University, by contrast, is only about 2 percent.

If repayment is difficult, don't wait to go into default. Contact your lender immediately to see what relief might be available to you. This will vary depending on whether the loan is a public (federal) loan or a private one from a bank or similar institution. Relief available also depends on the terms of the individual loan agreement.

Possible relief may include a deferral or forbearance of payments until your economic picture improves or a reduced payment reflective of your income level. In a few circumstances, loan forgiveness may apply such as when the borrower becomes completely disabled.

If your loan goes into default, your credit rating can be seriously damaged and the lender could try to garnish your wages, a legal action in which your employer must take money out of your pay to send directly to the loan holder. Other types of legal action may be taken against you.

Normally, people facing financial problems take a hard look at whether bankruptcy is a logical option. However, it is very tough to get a discharge in bankruptcy of student loan debt. Over time, the law has gotten stricter in this regard, and a graduate must prove that the loan imposes "undue hardship" or him or herself and on dependants to have the loan discharged (cancelled) in bankruptcy. The undue-hardship standard can be hard to prove in court.

An alternative to discharge in bankruptcy may be a Chapter 13 bankruptcy reorganization plan in which the court approves a three- to five-year repayment plan for all of a debtor's debts. During the plan, monthly payments may be significantly reduced. Although the debt will still be there after the plan ends, it buys some time for the graduate to improve his or her financial situation to the point where the repayment will be more manageable.

If you are a Tennessean struggling to keep current on your student loans, talk to a knowledgeable Tennessee bankruptcy attorney. Your legal counsel can take a close look at the terms of your loan and what relief makes the most sense for you.