Today's graduates (and those in recent years) are getting out of school with more debt than ever before. This is due in no small part to the double-digit increases in tuition and fees for countless public and private colleges and universities across the country. The average 2016 graduate, for example, has come out of school with a diploma in one hand and about $38,000 in debt in the other.
The rapid rise of student loans, coupled with a still sluggish economy in many areas and the difficulty some recent graduates have reported finding work in their chosen field, has resulted in a wave of loan repayment defaults across the country. Once a borrower has defaulted, the original student loan provider (or the new owner of the debt, if it has changed hands in the interim) can bring a lawsuit seeking a judgment to collect the entirety of the loan balance.
These collection lawsuits are increasingly common nowadays, and student loan debt collectors are notoriously aggressive when seeking payment. The problem with bringing a lawsuit to collect them is that courts require meticulous recordkeeping to show ownership of the debt. Without that information, the entire loan can end up being uncollectible.
Lenders learned this lesson the hard way a few years ago during the subprime mortgage lending crisis as countless lawsuits were dismissed and mortgage loans nullified because of allegations of "robo-signing" on court filings and loan documents. The New York Times reports that upwards of $5 billion of student loans currently in collections could actually be forgiven because of missing or forged ownership documentation.
The forgiveness of these loans could be a huge financial boon for struggling borrowers who find themselves unable to keep up with payments. Many people are so desperate to pay their student loans (particularly as creditor harassment spikes when they miss payments) that they end up falling behind on other bills, leading to an overall untenable financial situation and eventual bankruptcy filing.
Student loans aren't typically discharged in bankruptcy, but if the loan is forgiven, then a bankruptcy filing could focus on other debts, or it could be unnecessary. Regardless of the types of debt involved, if you are struggling with staying financially afloat, you should discuss your situation with a qualified bankruptcy attorney.