It’s Easy to Discharge Student Loans in Bankruptcy: Proof That Millennials are Ethical

A typical credit card terminal that is still p...

A typical credit card terminal that is still popular today. visanet (Photo credit: Wikipedia)

I’m surprised when I read about how student loans are unforgivable debt. Honestly, if you are willing to go through bankruptcy, discharging large volumes of student loan debt is actually quite easy. Here’s how you do it:

  1. Acquire as many credit cards as you can
  2. Pay off as many student loans as you can with your credit cards
  3. Wait for interest payments to send you into bankruptcy
  4. Discharge credit card debt aka student loan debt

You see, it’s not as hard as you think and blatantly unethical. This is no financial recommendation. However, this is not the course most college grads take. I know this because if it were a problem, hundreds of bank lobbyists would be flooding congress trying to stop it.

While there are many people unwilling to take responsibility for their financial decisions, the fact that today’s grads are bearing the burden of their massive student loans shows a moral fiber that makes me think there is a lot of hope for the latest generation of adults and their future ability to lead.

Unless of course millennials aren’t getting student loans discharged this way because they haven’t figured out how? I guess now that I put it out into the great internet expanse, we’ll find out.

Top Ten Family Finance Posts of the Week

So much has changed in the last month and a half I’d need to do daily posts for a few weeks to cover it all. It’s created a big problem for me because I really want to share it with the entire PF blogosphere. I simply haven’t figured out a way to tell the details in a short period of time, so for now I’ll give the Cliff’s Notes version:

  • I picked up a lot of new staff writing opportunities
  • I went on vacation at the end of February
  • A very dear mentor of mine passed away
  • I completed courses for my MBA
  • I made a decision to pursue a CMA instead of a CPA in the short-term
  • I’ve nearly finished remodeling my master bedroom
  • My son started crawling
  • My daughter became a social butterfly and now regularly asks to hang out with her friends
  • My department went through a major reorganization and my team completely changed
  • The company I work for finished their fiscal year end (I work in finance, so this is my busy time!)
  • I was promoted at work
  • Our family decided to let my wife take a second year off from work for maternity reasons
  • I’m headed to Virginia for Easter with my sister

Listing the events really does not do justice to how major some of these changes have been form my family and our finances. I could probably do a month-long series on most of the bullet points above – perhaps I will.

You’ll notice that some of these changes are great, some were tragic and others have left our family finances in a tenuous situation. It’s been a rollercoaster month and a half, but at least I’m feeling like blogging is back to normal. The good news is that I’ve kept up to date on reading my friend’s blogs!

  1. There’s still 14 days left to finish your taxes and you definitely want to avoid deductions that don’t fly. Just because you can make an argument of a deduction, doesn’t mean that you can take one.
  2. It doesn’t matter how much you like to shop, it is certain that there are things that you will hate to spend your money on. American Debt Project has a good list. Personally, I hate haircuts and oil changes.
  3. If it feels like inflation is much different for you than what you’ve been reading in the media then Don’t Quit Your Day Job has the price index for you. Browse the inflation data and pick the index that fits your own personal spending emotions! Personally, my wallet is sensitive to the Big Max Index.
  4. Erin is taking a trip down old credit card statements and blasting off a few centuries into the future when the only thing that stands between mankind and assimilation into the borge collective is the fearless officers in starfeet.
  5. Is there a lot to look forward to in old age? Maria makes the case, but then the youth do have that one coveted treasure: time. Worse still, they seem to know it and are very quick to remind those who are, shall we say, experienced.
  6. The problem with personal finance blogging is that there is a lot written about investing. It’s understandable since investing is very complicated. However, what many people really need is some information on how to save. Corey has been on a roll over the last two weeks, but saving in your 20’s is probably the best place to start.
  7. Dr. Dean is putting his fuel economy and marriage on the line. Oh yeah, there’s some reasonable advice on lowering your pain at the pump too (if you are into that sort of thing).
  8. How could I pass up the opportunity to point out a killer whale submarine? Step Away from the Mall couldn’t; I guess we have something in common.
  9. If you want to ruin your real estate business, then disorganization is the path for you. If you’d like some other tips for self-destruction head over to Simple Finance, she’s got another 7 of them.
  10. For Jeremy, the Jeep is gone, now comes all the fun of dealing with insurance companies, liability and finding a new car.

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14 comments for “It’s Easy to Discharge Student Loans in Bankruptcy: Proof That Millennials are Ethical

  1. April 6, 2012 at 2:01 pm

    Thanks for the mention Shaun! You’ve been on a roll lately too.

    • Shaun
      April 6, 2012 at 7:47 pm

      Thanks. Hopefully, I can keep it going!

  2. PK
    April 6, 2012 at 3:15 pm

    Thanks for the mention!

    You’ll have to let us know when you start getting loads of search results on this article for “How do I discharge student loans?” and you accidentally start the revolution!

    • Shaun
      April 6, 2012 at 7:47 pm

      Google certainly owes me. That’s for sure. Hopefully some of the revolutionaries will head over to DQYDJ!

  3. April 6, 2012 at 7:09 pm

    I don’t necessarily think millennials are ethical – they probably just don’t have enough available credit to pay off their student loans with credit cards! My total student debt was about $52k when I got out of school…. I’ve never had that much credit at my disposal.

    • Shaun
      April 6, 2012 at 7:46 pm

      Yeah. I couldn’t pay off all my loans on credit either, but most people could probably do some serious damage to the balances.

  4. April 7, 2012 at 2:38 am

    I’ve never thought of this strategy, but yeah, I guess it could be done. I wonder though, which would be a more long-lasting credit hit: bankruptcy, or defaulting on student loans. I don’t know, but I suspect bankruptcy. Sad though that these days a middle class kid can’t pay for college without taking on massive debt.

    • Shaun
      April 7, 2012 at 5:41 am

      Definitely a good question, although, I think it might be student loans actually. I was reading a report from the NY Fed the other day that showed $35 billion in past due credit card debt for those 60 and older. One of the reasons was that there is a pool of people who have never been able to make a dent on the principal and could not discharge the debt; very eye opening.

  5. April 7, 2012 at 8:13 pm

    I can’t say much about discharging student loans but thanks for including me in your round up.

  6. April 9, 2012 at 1:38 am

    I really hope the student loan debt doesn’t turn into the next economic bubble (like housing was). It’s going to be a little bit harder to garnish one’s education than it was to take back the house they couldn’t afford.

    • Shaun
      April 9, 2012 at 2:40 am

      I’ve heard that it’s impossible for a student loan bubble because student loans aren’t traded and thus, you don’t get overvaluation.

  7. April 11, 2012 at 2:43 pm

    I’m going to call this the “kitchen sink” post, because you included a little bit of everything here! Congrats to your son on the crawling; our boys must be about the same age. I thought that if you were that transparent about moving your student loan debt to credit cards that it might not be included in your bankruptcy though?

  8. Donavan Pantke
    May 18, 2012 at 4:52 am

    Umm… I want to point out that your “method” of avoiding the bankruptcy discharge problem has one small kink in it: It’s illegal.

    There are many state and some federal laws that prohibit one from entering into contracts with the express intent of defaulting on the obligations. If you were to honestly tell a lender that you intend on using your loan proceeds to shift a cramdown on a debt from someone else to them, they would never loan it to them. This is called “fraud by ommission” where you intentionally mislead a counterparty by omitting a piece of material information.

    So, even if you were an unethical buttmunch student, you may spend the next 5-15 years wondering how “easy” discharging that debt really was.

  9. RKM
    May 28, 2012 at 7:19 pm

    Just an FYI – bankruptcy law allows your credit card company to sue you in your bankruptcy to make the debt nondischargeable if you use it to pay off nondischargeable debt.

    Credit card companies review your card activity during a certain period before you file bankruptcy, and if they notice it, they’ll challenge it.

    –A bankruptcy attorney

    P.S. I wish it were easier! But be warned; if you do this, you could end up worse off – credit card debt has higher interest rates than student loans, and if you can’t discharge them, you filed bankruptcy for nothing and it will take you even longer to repay.

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