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December 2014


Student loans: College, cautions and consequences
Mirkin & Gordon, P.C.


Students protest tuition hikes at UC
On November 24, 2014, students at the University of California staged massive statewide walkouts in protest of significant tuition hikes for the next five years. (photo by Reclaim UC)

Editor's note: With many members helping their children through the college application process this time of year and anticipating financial aid packages from various institutions, we thought the following piece from Mirkin & Gordon might prove useful.

A college education generally leads to greater employment and earnings potential. However, it comes with a price. In 2012 approximately 70% of college students graduated with student loan debt that, nationally, averaged nearly $30,000.00 per students. There was between $900 billion and $1 trillion in outstanding student loan debt in 2012.

Although they generally have lower loan limits, federal student loans which account for almost 80% of all loan debt offer a number of advantages over private student loans. Federal student loans offer:


  • Fixed interest rates generally ranging from 3.4% to 7.9%
  • Repayment is deferred and interest does not start to accrue until after graduation
  • Interest can often be deducted for income tax purposes
  • Consolidation of multiple loans to afford the borrower a single payment
  • There are no pre-payment penalties.


There are a number of programs aimed to assist you in repaying your federal student loan debt, including

  • Deferment (interest does not accrue) and forbearance (interest continues to accrue) programs for financial hardship, illness or other criteria
  • Loan forgiveness for teachers and public service employees
  • Income-based repayment (15% discretionary income) and pay as you earn (10% of discretionary income) programs based upon financial hardship.

Repayment, however, is key to avoiding significant financial consequences. A default in repaying student loans can result in

  • Automatic intercepts of income tax refunds and certain federal benfis such as social security and disability
  • Wage garnishment of up to 15%
  • A negative impact on one’s credit score which will result in higher credit-based costs such as auto insurance
  • Harassment by debt collectors.

Significantly, there may be consequences to persons other than the borrower. For example

  • A co-signor (e.g., a parent) will be liable for the loan if the borrower defaults
  • Student loans may be considered marital debt in the event of a divorce thereby affecting the non-borrower spouse’s overall financial settlement/obligation.

Discharge of federal student loans is not common but is available in limited instances such as

  • Death or total and permanent disability of the student
  • Victim of 9/11
  • Bankruptcy (very rare).

Understanding student loans is a daunting task. Under the Benefit Fund’s legal plan, a covered member may schedule an appointment with an attorney to discuss available legal measures if confronted with a student loan collection issue.