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Published On: Thu, Jun 25th, 2015

Student Loan Debts Still a Crippling Issue, But Bankruptcy May Be a Way Out

As recent as the last quarter of 2014, it was estimated that 40 million Americans have at least one outstanding student loan.

At least one.

That is a scary figure, specially if you consider that there were only 29 million in that situation in 2008. If those numbers aren’t staggering enough, consider the amount of money involved in the loans – $1.2 trillion in student loans, an all-time high.

Student loans have long been accepted by Americans as one of the main methods of being able to go to college. There are federal loans and private loans, the former being preferable as they are subsidized and the interest rates are lower. However, federal loans have more stringent requirements. One has to be deemed financially qualified, depending on the family’s ability to pay for the education, or one has to have earned enough merits – in the academic, art, or athletic departments for example.

On the other hand, private loans are easier to acquire. Various institutions offer student loans prior to enrolment, as well as during the course of one’s study. This helps many a student get through college.

The issue is that with private loans – aside from higher interest rates – a student may be able to take out a loan without a solid credit history or good financial track record. They may be so young they don’t even know how to handle their finances properly. The result is that mind-blowing amount of $1.2 trillion in student loans.

photo: TaxRebate.org.uk

photo: TaxRebate.org.uk

While this may just be a number to those who do not face student loans, individuals who do are in hot water. They may not have found high-paying jobs to pay off their loans, which earn interest continuously. They still have to pay for their cost of living.

How are these people to deal with the crippling problem of their student debt?

Earlier this year, President Barack Obama brought up the idea of making bankruptcy an option to write off student loans. Currently, student loans are not eligible to be written off when filing for bankruptcy, as opposed to other non-secured loans like credit cards and personal loans.

Los Angeles Bankruptcy Lawyer Matt Resnik states that with the President’s suggestion of exploring this expansion of student loan legislation, individuals dealing with student debt now have a feasible option to get themselves out of their predicament by filing for bankruptcy. If this ‘suggestion’ becomes law, then millions of Americans who have been stuck in a cycle of debt now have a legal way out.

However, it’s not all sugar and spice. While the writing off of student debt in bankruptcy filing is certainly in the interest of individuals who have existing loans, there are also other implications that need to be considered.

Brett Miller of the WSJ raises significant points.

“If there were to be an amendment to the existing bankruptcy laws and the forgiveness of existing student loans, the obvious question is what changes would need to be made to the process of approving student loan candidates going forward? Would private lenders be less willing to make student loans? If so, is the U.S. government ready to become the sole provider of student loans?”

Additionally, would interest rates for private loans go higher to cover the lender if the borrower goes bankrupt?

Indeed, if bankruptcy laws were to be expanded to expurgate existing student loans, countless people will benefit from it. But the issue and actions cannot end there. The entire student loan structure/process will have to be reexamined and revised as well.

These are the considerations – and more – that lawmakers have to delve deep into before any revisions can be made.

Guest Author: Lolita Di

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  1. Become A Mortgage Processor | Best American Mortgage Rates says:

    […] Student Loan Debts Still a Crippling Issue, But Bankruptcy May Be a Way Out – the obvious question is what changes would need to be made to the process of approving student loan candidates going forward? Would private lenders be less willing to make student loans? If so, is the U.S. […]

  2. Bankruptcy Laws And Mortgage | Best American Mortgage Rates says:

    […] Student Loan Debts Still a Crippling Issue, But Bankruptcy May Be a Way Out – “If there were to be an amendment to the existing bankruptcy laws and the forgiveness of existing student loans, the obvious question is what changes would need to be made to the process of approving student loan … […]

  3. JM says:

    What a bullshit article. Will private student loans stop being offered/ will interest go up because of bankruptcy being option? Well, considering most banks no longer offer private student loans, that’s a pretty moot point. When they do/did offer private student loans the interest rate is already at a record high level. They’ve basically turned themselves into loan sharks where private student loans are concerned, asking for finance charges up to and beyond 4x the amount of the original loan.
    Also, the entire student loan structure already needs to be reexamined and revised, so another moot point. WTF are journalist getting paid for this type of crappy, superficial article?

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