How a mother and son got locked in $115,000 student debt trap

When Deborah Circle’s son, Stephan, came to her in 2003 to ask her to cosign his student loans, she did not hesitate. He was the youngest of her four children, whom she had raised as a single mother, and a promising student, studying business and sports marketing at a private university near their home in New Brighton, Pa.

He was also the first of her kids to ask her to cosign a student loan, although Circle was no stranger to student debt herself. While bringing up her kids and working full time, she earned her Bachelor’s degree in 1999, taking on $25,000 in student loans in the process. Her investment paid off, leading her to a higher-paying job as an office manager at an accounting firm.

She wanted to give her son the same opportunity.

“College was very expensive and by then I was making too much money for him to get much in the way of grants,” says Circle. “He seemed well on his way to success and I didn't believe he would have any problem finding a good job in the field he wanted and would be able to pay on his loans.”

As predicted, her son didn’t have trouble finding work after he graduated. What they could not have predicted, however, was that Stephan and his wife would have two young sons who would spend most of their early years in and out of hospitals. His wife eventually stopped working full time to care for them and Stephan took a local job in sales to stay close to home.

Photo: Deborah Circle and her son, Stephan.

Stephan eventually fell behind on his student loan payments. And, as lenders are wont do, they turned to his cosigner to pick up the tab. Both son and mother field dozens of phone calls from lenders and debt collectors each week.

“It’s one of the biggest burdens on me because I know that [my mother] is struggling financially and it’s not her debt,” Stephan, 30, says. “It just adds to the stress of everything I’m going through and inability to pay back these loans, defaulting and worrying about what they’re going to do next.”

To keep debt collectors at bay, he and his mother pool their resources each month, paying roughly $1,000 when they can. His loan balance, which totaled $88,000 when he graduated, has since ballooned to over $115,525, thanks in part to ever-accruing interest and late fees.

“This is after both of us paying literally thousands of dollars over the last several years to try to keep the loans from defaulting,” Deborah says. “My savings are gone. I’m going on 63 years old and I’m afraid I’m going to have to work the rest of my life.”

The consequences of their debt go beyond dollars and cents. Both of their credit scores have plummeted. When Deborah needed to buy a new car, the only loan she qualified for came with a 20% APR. Stephan and his wife haven’t been able to qualify for a mortgage, so they continue to rent. They have applied for medical relief services to help manage their sons’ expenses, but are consistently denied based on their combined income without consideration for the amount they pay toward student loans each month.

“If I could do it all over again, I would never, ever go to that school and take that money,” Stephan says. “I would rather have zero college debt and work at a convenience store than deal with what I’m dealing with right now.”

"Many people who really deserve bankruptcy relief on student loans will never get it.”

While Stephan has been able to put his federal loans into forbearance, interest continues to accrue while his loans linger, so it’s not a long-term solution. He has had some success lowering his interest rates on his private loans, but private lenders have notoriously fewer repayment options for borrowers who fall behind. He and his wife have talked about filing for bankruptcy and attempting to have the loans discharged, but have decided it would be too difficult because their income, at least on paper, seems too high.

Even if they were able to discharge their loans, as a cosigner, Deborah is equally liable for the debt her son owes.

 We ran Circle and her son’s predicament by Leon Bayer, a California bankruptcy attorney, who has experience petitioning courts for student debt discharges. Given the Circles’ situation, he says it may be possible to win a case against their lenders, but his legal fees alone would probably bankrupt them. He charges a $15,000 retainer upfront to take on a case like theirs, which would take up to six months to litigate.

“Unfortunately, these cases command a huge amount of attorney time,” Bayer says. “The lenders fight them tooth and nail and that drives up the cost. That’s the reason why so many people who really deserve bankruptcy relief on student loans will never get it.”

The bigger picture

Persis Yu, an attorney with National Consumer Law Center, says there are free legal services available for people who can’t afford their own representation. But their resources are limited and they typically don’t serve consumers with incomes above a certain level.

“Some attorneys will offer ‘low bono’ services if someone can’t afford a private attorney and also doesn’t qualify for free legal services,” she says. Finding them is the hard part, but Yu suggests starting by doing a web search for free community legal services in your state and asking them for referrals.

“The bigger picture is that these legal services are underfunded and they’re all flooded and have wait lists,” she says. “I just wish there were more people to provide services because it is complicated and its hard for people to figure out.”

For those who can come up with the cash to cover attorney fees, that’s only half the battle. Convincing a court to discharge student debt is the real challenge. Borrowers have to prove that their debt is causing them true financial hardship, and that doesn’t mean dealing with a few annoying calls from collectors.

“Most people who prevail on this have some kind of serious permanent mental or physical disability that prevents them from earning anything more than a minimal standard of living,” Bayer says.  

Unwilling to withstand the financial risk of taking their case to court, the Circles say they will do the only thing they can — keep making monthly payments to the best of their ability, knowing that they will likely be paying off their debt for the rest of their lives.

“You feel like you're the only one in this situation, thinking how could I have been so stupid as to let myself get into this mess?” she says. “Yes, some of it was my and my son's fault, but the system actually is such that it has been made impossible for us to ever pay it back, even with the best of intentions.”

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