The Federal Reserve estimates that Americans owe $1.5 trillion in student loans. This crippling debt is forcing many working folks to file bankruptcy. One reason may be because those with federal loans (such as those through Sally Mae) get offers for additional loans that can help pay for living expenses while in school.
Unfortunately, according to a recent story, many students do not realize that these secondary private loans do not have the same fixed rate and manageable repayment schedules because a student went to a private institution. Private education loans can have no repayment help and a variable interest rate.
Filing bankruptcy
Making their lives worse rather than better, many end up filing Chapter 13 or Chapter 7. But unfortunately, student loans are traditionally not part of the long list of debts to be discharged. Those who loan become delinquent after the first missed payment, even in bankruptcy. This can lead to penalties as well as collection fees and commissions by debt collection agencies.
Fighting backSome are now challenging the validity of this approach regarding student loans. The rationale points out that a private loan that did not go to tuition should be treated as any other loan, and thus could be dismissed in bankruptcy.
Many of the large student loan organizations are facing lawsuits about its lending practices because of reasons like this. Lawmakers are now drafting new bills that ideally avoid predatory lending to vulnerable students and families.
Ideally, this will change the student loan landscape for the better, but it still may not be enough or soon enough. Those needing immediate debt relief would still be wise to consult an attorney knowledgeable in filing bankruptcy. They can provide a legal financial lifesaver to those drowning in debt.