Before You Take Out that Student Loan…
This article serves as a good reminder as financial aid award letters will be hitting email accounts shortly.
From The Consumerist:
Although bankruptcy should only be viewed as the last option for consumers drowning in a sea of debt, even this final-straw course of action won’t help Americans with getting out from under hefty student loans — but it wasn’t always this way.
Students being crushed under the weight of mounting student loan debt have few options when it comes to receiving forgiveness for their debts, and bankruptcy is often the least obtainable.
Other debts, including your mortgage and auto loans, are dischargeable through bankruptcy filings, but student loans can only be discharged if the borrower proves “undue hardship” through a court determination.
Points of emphasis:
- Filing bankruptcy does not take away your responsibility for paying off your student loan (unless you can prove “undue hardship” which is a difficult standard to prove and will take hundreds, if not thousands in lawyer’s fees). This is unlike most other debts and stemmed from a concern from Congress that recent graduates would file bankruptcy en masse to avoid their student debts.
- As more repayment options are available, it becomes more critical for the borrower to get ahead of the game and contact the loan servicer when they get into financial difficulty. It is a lot easier to work out a plan BEFORE you have gone months without paying back your loan.
Check out the NGPF lesson on Student Loans.
About the Author
Tim's saving habits started at seven when a neighbor with a broken hip gave him a dog walking job. Her recovery, which took almost a year, resulted in Tim getting to know the bank tellers quite well (and accumulating a savings account balance of over $300!). His recent entrepreneurial adventures have included driving a shredding truck, analyzing executive compensation packages for Fortune 500 companies and helping families make better college financing decisions. After volunteering in 2010 to create and teach a personal finance program at Eastside College Prep in East Palo Alto, Tim saw firsthand the impact of an engaging and activity-based curriculum, which inspired him to start a new non-profit, Next Gen Personal Finance.