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Bankruptcy and School Loans

Receiving a college education may be the single most important accomplishment that one may achieve in their entire life time.

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Though some students think that bankruptcy will alleviate their student debt, bankruptcy and school loans information will assure students this is no longer the case. Lawmakers regularly mention bankruptcy and school loans. In fact, as recently as 2005, legislative efforts such as The Bankruptcy Abuse Prevention and Consumer Protection Act comprehensively detail the relationship of bankruptcy and school loans.

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Though bankruptcy and student loans may be an unfamiliar prospect for those considering college, student loans are manageable if you understand the terms of the loans you have.

Before you take out a student loan, find out:

  • Type of loan
  • Whether the interest rate is fixed or variable
  • Repayment terms
  • Repayment options for financial hardship
  • Extension terms for financial hardship

Recent national statistics show that the average taxpayer pays $400 a year to fund court cases dealing with bankruptcy and school loans. College graduates with multiple debts find themselves paying off student loans, in addition to the every day cost of living. Although bankruptcy may seem like a viable option in these cases, graduates clearly are misinformed and need to read more. In years previous of 1976, virtually all forms of student loan debt proved easily removed during a personal bankruptcy filing. However, Since the United States Bankruptcy Code in 1978, the federal government has slowly reduced the types of school loans deemed dischargeable through bankruptcy. Furthering the discharge restrictions concerning bankruptcy and student loans, the Bankruptcy Amendments and Federal Judgeship Act of 1984 exempted from discharge any private educational loans from non-profit lending entities. Then in 2005, as mentioned previously, The Bankruptcy Abuse Prevention and Consumer Protection Act inherently ended any form of school loan debt relief sought by students through bankruptcy proceedings.

Changes made to federal bankruptcy laws in categorically prohibit the cancellation of student loan debt obtained through the US Department of Education due to bankruptcy. This includes Perkins loans, Stafford loans, PLUS loans, and many others. For those facing financial hardship due to student loans, researching graduated repayment options, forbearance, lengthening of loan terms, or loan consolidation tactics. Remember, government loan programs provide ways for student borrowers to avoid resorting to bankruptcy much more aptly than private lenders. For students and parents, this information is pertinent to keep in mind when initially researching and applying for student loans. Though very rare, The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 does contain the brief clause stating severe economic hardship by failing to discharge a student loan for students or their dependents is potentially grounds for discharge. Allowing this to occur involves pleading a case in front of a judge, and in virtually all cases, the result is a remaining student loan debt repayment obligation.

Given the discharge of student loan debt is essentially outdated and unavailable, students and their parents must seek other methods to reduce burgeoning debts following graduation. In most cases, individuals must accurately analyze the terms of all their student loans and consider the options available. For some, negotiating forbearance terms or graduated payments are the answer, while others find loan consolidation as an economically feasible answer to mounting loan debt pressures. Whatever the case may be, students, as well as their parents, must embrace the reality of student loans in the United States. All student loans will eventually face reimbursement, regardless of the lending entities status as federal non-profit or private lender. Being well informed prior to accepting any loan agreement amount is the first step for any student wishing to avoid future complications stemming from school loan debt overload.

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