Student loan debt is a looming crisis in our country – the aggregate amount outstanding is over $1 Trillion and has surpassed outstanding credit card debt. When you are young and naive, taking out a $60,000+ student loan for the college of your dreams seems like a great idea. Then you graduate, start paying your own bills, decide you want the American dream with a decent car, mortgage and family and realize that maybe that big, expensive college education may not have been worth the debt. Oh, and student loans aren’t dischargable in bankruptcy. What is an overburdened student loan debtor to do?
Some desperate debtors may consider shifting some of that debt to a credit card, where they’d get a lower rate (or have the credit card debt discharged in bankruptcy). Using one or more credit cards to get out from under the burden of student loan payments can seem tempting, especially in terms of racking up rewards points, and low or no interest for a year or so with an introductory promotion. We would caution anyone against that option.
Refinanced or consolidated student loans are still considered student loan debt and are excepted from bankruptcy discharge — this includes transferring the student loan to a credit card. There is the argument that credit cards are not “solely” education loans, however, to date, that argument has not been tested. This move could also be considered fraud, which may lead to a lawsuit.
In the real world, how many credit card creditors are actually going to track and follow up on Joe Debtor who has tried this kind of transfer? The burden of proof may for the creditor may be near impossible to sustain in a revolving account context, due to purchases, payments, finance charges, etc. and how each are applied. But is it worth the risk? Do you want to find yourself defending a lawsuit in addition to trying to manage debt?
There are better alternatives. Before you consider transferring your student loan to plastic, meet with a certified bankruptcy lawyer. Cossitt Law can help you understand the legal and practical risks so you can make an informed decision.