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Categorized | Financial Literacy

Bankruptcy & Student Loans, Everything You Didn’t Know

Everyone knows it’s no secret that college these days can cost an arm and a leg. Between tuition, fees, books and more, the total cost of attending even for just one semester can creep upwards of 5 digits—that’s a hefty price tag. While some students luck out and receive financial assistance by way of grants and scholarships, others are not so lucky and, if they don’t have a sizable reserve of personal or familial funds, must rely on student loans to foot the bill.

Thousands of students opt to do this for the speed and convenience it offers, even though they know going into it the pay-off in the end can be rather pricey. They recognize that there’s no way they could ever pay back these loans given their current financial situation, but they look to the future with promise and hope that they’ll l and a great job after graduation to cover these expenses.

Only, there’s one problem with that plan—the job market has been less than stellar the past few years and many graduates are getting nowhere in their search for a career. Meanwhile their loans are coming due and they just don’t have the means to make it work. Recently, some former students who are buried in debt have explored the option of having their college loans discharged in bankruptcy.

However, as many of the students have found, this is proving a less than easy task. According to the official stipulation, to discharge a student loan this way they must prove that paying them back would prove to be an “undue hardship” on the debtor. That’s sort of a vague stipulation and hard to define, especially in legal terms. Something that’s a hardship for one person might not be for another.

This vagueness is believed to be part of the reason why many individuals—it’s estimated there are over 35 million people with loan debt—don’t attempt to have their loans discharged. They find the whole thing very unclear. Plus it doesn’t help that certain lenders such as Collecto have misled debtors into believing they were not eligible for bankruptcy dismissal when in reality that’s just not the truth.

Sure, like with many legal issues the whole process can be long, drawn out and expensive, but that shouldn’t keep former students from putting up a fight. What’s needed here is more information on the subject. People need to know they have options, and up until now, I’m not sure they did. Although some progress has been made, there’s still much ground to cover.

From a professional perspective and someone who’s a former student themselves, I feel that this whole loan/bankruptcy issue is just a symptom of a much bigger problem, and that’s the inordinately high cost of paying for college these days. Sure there are scholarships and alternative programs, but schools and universities everywhere are continuously tacking on fees and charges making the dream of earning a degree that much more unattainable for a great deal of the population. So, until things on that front change, I’m sure we’ll be seeing more and more student loan holders in court.

Today’s guest article is provided by Kate Willson. She is a long-time advocate of peer-based learning, online classes and open education. You can read more from Kate at collegecrunch.org. If you enjoyed this post, let Kate know by commenting below!

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