An article published last week by Bloomberg Businessweek tells the story of Robert Murphy, a 65-year-old man who holds nearly $250,000 in student loan debt. The balance was amassed from seven different Parent PLUS loans, which he used to send his three children to college. After losing his job in 2002, Murphy was no longer able to make payments on these debts, and even faced foreclosure proceedings on his home. He declared bankruptcy four years ago. As federally-backed loans, his student debt was not discharged and he is still responsible for paying it.
Typically, the only way to have student loan debt discharged is to prove that paying the debt would create “undue hardship,” meaning that a person’s entire life would be characterized by a “certainty of hopelessness and that repayment would “strip the debtor of all that makes life worth living.” For the past three years, Murphy has been using this standard to fight for a discharge in court. He argues that even if he were to find a job paying $50,000 a year and work until he was 77 years old, the balance of his loans would grow to exceed $500,000 – an amount he will still never be able to repay.
The trouble is, there is no universal standard for the definition of “undue hardship,” and many courts have been left to their own interpretations. While some argue that student loan forgiveness is damaging to the system, the current scope of the problem makes it clear that something has to be done. The bankruptcy exemption for student loan debt has allowed financial hardship to worsen as people age, and it is costing the government either way. Those who attempt to pay back loans must rely on government assistance to meet basic needs, and the government recovers nothing from those who cannot pay back the loans at all. On December 10, a group of Democratic senators introduced a bill that would stop the government from garnishing Social Security benefits to pay back federal loans.
These figures show just how large the crisis has gotten:
- The amount of student loan debt held by borrowers age 65 and older: $18.2 billion (up from $2.8 billion in 2005)
- The number of borrowers age 60 and up: 2.2 million (up from 700,000 in 2005)
- 27 percent of education loans held by people age 65-74 were in default in 2013
- More than half of student loan debt held by people over the age of 75 were in default
- 155,000 seniors lost part of their Social Security benefits to repay student debt
Struggling with debt? Wadhwani & Shanfeld may be able to help. Contact us today at (800) 996-9932 to request a consultation.