Personal Bankruptcy, Parent Loans, and the Student Debt Crisis

When we think about the student loan debt crisis and consider the ways in which personal bankruptcy may or may not be an option for discharging student loan debt, most of us think about the students who used those loans to attend a program at a college or university. However, as a recent article from 401kTV points out, parents of college students are also frequently left with student loan debt (from their children), and those parents also want to learn more about bankruptcy options for managing debt.
How do parents end up bearing the brunt of student loan debt in certain situations, and do they have the option of filing for consumer bankruptcy to discharge loan debt?
How Student Loan Debt Affects Families (and Not Just the Student)
The effects of student loan debt extend well beyond the individual who used those student loans to pay for school. Many parents find themselves in situations in which they have taken out student loans to help their kids pay for school. Why do parents take out student loans for their children? In other words, why are these costs being placed upon parents when their kids (the students) could be borrowing the money they need to pay for college? An article in U.S. News & World Report explains that college costs—including student loans—often fall to parents “after students hit the federal borrowing limit.” Indeed, as of 2017, approximately 14% of college students relied on parent loans to pay for school.
Most parents who take out student loans for their children borrow Parent PLUS loans, and the average borrowed is just over $10,000. However, there are a number of parents who borrow private student loans, which tend to be for larger amounts. In some cases, parents also use other options to help their children pay for college, such as taking out home equity loans or using money from their retirement accounts.
For some parents, taking out student loans to help their children pay for college can result in more debt than they can handle, and some seek bankruptcy protection. According to the article in 401kTV, student loan debt from children could be one of the reasons that we have seen a rise in bankruptcy rates among older adults.
More Older Americans Filing for Bankruptcy: Is Student Loan Debt Partially to Blame?
The article discusses recent research surrounding bankruptcy filings among older Americans, particularly for recent retirees. It suggests that the student loan debt crisis could be the reason that some of these recent retirees are filing for Chapter 7 bankruptcy—in an attempt to discharge student loan debt that they borrowed for their children. If this is the case, the article intimates, we could see a continually rising rate of bankruptcy among older adults as long as the student loan debt crisis continues.
Since 1991, the rate of bankruptcy among adults aged 65 and older has tripled. While there are numerous reasons that researchers have cited for the rising rate of bankruptcy in the Baby Boomer generation, it may be important to start thinking more closely about the role that parents’ student loan debt (borrowed for their kids) could be playing in decisions to file for bankruptcy.
Contact an Oak Park Bankruptcy Lawyer
Do you have questions about student loan debt and bankruptcy? Do you have concerns about filing for bankruptcy after retirement? An experienced Oak Park bankruptcy attorney can answer your questions. Contact the Emerson Law Firm for more information.
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