Is it Ethical to Go Back to School While on an Income-Driven Repayment Plan?

Question:

Dear Steve,

I filed Chapter 7 in 2017.

5k med bills, 40k student loans, 10k hung up in federal litigation (for-profit schools) since the Obama era.

Med bills forgiven

Filed post-bankruptcy suit to have student loans forgiven based on Brunner (SCOTUS precedent criteria for discharge)

Offered income-based repayment option by feds, $0 for 25 years at present income

Present income is not the max I have made, and it would remain at $0 if I had that income again.

Graduated college during 08-09 recession. To practice in my field, you must have a master’s and I could not rationalize taking on 2 more years of school debt when there were not any job openings except a few in the school district which paid the same as a teacher with only an undergrad degree.

I have a 4yr degree which is worthless in my field without the master’s. It is far too late to go back and finish master’s as the undergrad program would not even recognize my credits, in my understanding.

Ethics aside, is it possible to go back to college and not enter a new repayment contract for previous loans after my bankruptcy?

Does the federal govt still give out student loans if you have entered into a debt consolidation repayment plan with them?

I see more school as an option to increase my income and live more comfortably but have already basically told my creditors I cannot repay via my Chapter 7 discharge.

Angie

Answer:

Dear Angie,

Ethics aside. Interesting position. I don’t think you have to discount ethics in your decision. I love that challenge, so here we go.

I’m assuming you are in the teaching field in some way. At least it sure sounds like it.

Student loan debt is just insane. We keep repeating the same process and hope there will be a different outcome.

Your situation typifies the impossible situation. You filed what appears to be a Borrower Defense to Repayment application for some of your debt. The Trump Administration basically put a halt to all of that and those applications remain in limbo.

You then filed for bankruptcy, and the court determined that you did not qualify for a discharge on some loans. The courts apply different standards for discharge in different parts of the country.

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It appears you demonstrated the loans were unaffordable and unsustainable. Instead of granting a discharge, the court and Department of Education put you on an Income-Driven Repayment program that will never get you out of debt. Yet, the interest will continue to grow on those loans, and the balance will accelerate. Is that ethical?

It sure seems like a lack of ethics from the Department of Education regarding working out a real solution. Especially since the Department of Education has said in the past they will not object to a bankruptcy discharge in these situations.

If You Are in an Income-Driven Repayment Program Like IBR, PAYE, REPAYE, Then You Can Apply for New Loans

The crazy answer is yes. As long as there are no delinquencies or defaults on student loans currently in repayment, you should be eligible for additional federal student loans.

Your Income-Driven Repayment program might give you a $0 payment, and the interest is growing, but you are technically current and not in default.

The only way you will absolutely confirm your eligibility is to complete the Free Application for Federal Student Aid (FAFSA). The Department of Education says you do not need to wait to be accepted at a school before completing the FAFSA. They say, “You must list at least one college to receive your information. You can list all schools you’re considering even if you haven’t applied or been accepted yet. The schools you list will use your FAFSA information to determine the types and amounts of aid you may receive. If you want to add another school after you submit your FAFSA, you can login at fafsa.gov and submit a correction.” – Source

Your previous bankruptcy will not exclude you either.

Ethics and Student Loans at This Point

This seems like the most important question to ponder in your search for an ethical answer.

Is it ethical to remain in an impossible situation where you will have to likely rely on public benefits in the future and little to no retirement or to go back to school to improve your income opportunities?

It seems like at this point; you can either roll over and accept your current situation or do something to change it.

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Change might mean relocating to a different area where you can utilize your current degree and increase your income. Or it might mean going back to school and earn the Master’s to get you eligible for better income.

That is a crystal ball I don’t have.

Keep in mind; you won’t get the benefit of the Master’s unless you finish it. If you go back but don’t earn your degree, you will just have impossible debt.

If you are going to go back, I’d make earning that Master’s your number one priority and work hard to excel at it.

You will still owe the previous federal student loans that are not forgiven under the Borrower Defense to Repayment program or in bankruptcy.

Your new student loan debt will be added on top of your existing student loan debt.

But Right Now You Are Stuck Halfway

Given the facts you shared with me, it seems you have a degree that does not improve your job opportunities. You owe the debt for that degree, but it is not earning a return for you.

So you either accept where you are, or you try and change the situation. As long as you are stuck where you are right now, you know what the outcomes will be; more of the same.

You are not obligated to repay any other debt that was discharged in your previous bankruptcy.

Beware of Private Student Loans

If you do decide to pursue going back to school, avoid taking out any private student loans. Those loans do not have the flexible repayment options your federal student loans have.

Please come back and post a comment below and let me know what you decide to do.

Sincerly,
Steve

You are not alone. I'm here to help. There is no need to suffer in silence. We can get through this. Tomorrow can be better than today. Don't give up.


Damon Day - Pro Debt Coach

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