The issues surrounding student loans have been in the headlines for years. Some believe that student loans should be forgiven, others think the government should pay for them – while millions of Americans have already paid off their loans and believe everyone should be required to do so. 

The government providing a free college education – or allocating trillions of dollars to pay off existing loans – doesn’t address the cause of the student debt issue. Here are some of the factors that come into play when determining the student loan program’s real problems.  

  • Those who have the most challenging time paying their loan dropped out of school without obtaining a degree. 
  • Student loans are more likely to be placed in deferment than any other type of debt. Deferment prolongs the payoff date and raises the payoff amount – meaning that loan amounts increase and remain on the books longer. 
  • Average income levels have not been rising at the same pace as university tuition costs and fees. 
  • Obtaining an advanced degree is considered necessary for a professional career, yet most degrees do not result in a job that can pay off student loans within the time allocated. 
  • Students who earned credits from a community college often cannot transfer those credits should they move to a private college or university. This makes it necessary to retake many classes, adding to the cost of their overall degree. 

When parents and students agree to the loan terms, they may not understand the full ramifications of the process from beginning to end. College seems out of reach to most without student loans, so they think loans are a necessary evil. This leads to controversy over this type of debt. 

Debt Forgiveness Opportunities 

There are debt forgiveness programs that can be utilized to eradicate or reduce student loan debt. The government provides debt forgiveness opportunities for those who opt for a public service career – such as attorneys, physicians, and nurses. There are also debt forgiveness programs for teachers. 

Those with a permanent disability may qualify for a “permanent disability discharge” of student loan debt. If the loans originated from a bank or private lender, access to debt forgiveness programs is less likely than those issued by the federal government. A recent university graduate who is not earning a sufficient income or an individual who didn’t graduate may have less potential for forgiveness. 

Whether student loans are federal or private, deferment or refinancing is not a permanent solution. The loans will continue to accumulate interest, which means higher debt in the long run. Unless the debtor is making an earnest effort to pay off the student loan debt before accumulating more debt – through credit cards or car loans, for instance – it becomes harder and harder to get out from under the loans. 

Price of Loan Default 

If the student does not make their loan payments, the loan goes into default. Unfortunately, the impact of that default will likely also affect their parents (or any other co-signer).  

A student loan default can lead to lower credit scores, wage garnishment, withheld tax refunds, and withheld federal benefits. 

Student Loans and Bankruptcy 

If student loan payments cannot be maintained, deferred or forgiven, bankruptcy may be an option. 

Student loan debt is treated differently in the bankruptcy process than other unsecured debts. In some situations, student loan debt may be completely discharged through bankruptcy. Chapter 13 bankruptcy can “restructure all debt” to permit consolidation of all debt.  

In fact, student debt is one of the most common reasons that younger generations file bankruptcy. However, it is important to note that bankruptcy should not be filed simply to get rid of this type of debt – because the process is not set up to eliminate student loan debt. Bankruptcy may be appropriate if there are other debt issues in addition to educational loans. Bankruptcy may not eliminate student loan debt but can eliminate other debts – freeing up money to pay for the student loans. 

If you don’t have enough monthly income to pay your student loans and face default, it may be beneficial to explore bankruptcy. Call the law offices of Richard V. Ellis today to learn more.