Options for College Graduates Drowning in Student-Loan Debt

The number of college graduates with student-loan debt is increasing dramatically. The Project on Student Debt, a nonprofit research and advocacy organization, estimates that the number of college graduates with student-loan debt has increased by nine times since 1996. According to the College Board’s Trends in Student Aid study, the median debt amount for bachelor’s-degree recipients who borrowed while attending private, nonprofit colleges was $22,380.

Many student-loan borrowers find themselves in a position similar to subprime borrowers who assumed the value of their houses would always increase. Like subprime lenders, some universities enroll students without asking many questions about whether they can afford to pay the bill. If the students cannot afford the tuition, universities direct students to private, for-profit lenders who have no idea what the student might earn after graduation, just like mortgage lenders who did not verify borrowers’ incomes.

It is almost impossible to discharge student-loan debt in bankruptcy, but bills in the U.S. Senate and House of Representatives might help graduates who are drowning in student-loan debt. Under proposed changes, rules on the discharge of private loans would be less stringent than current laws, which require the debtor to prove “undue hardship.”

However, borrowers could not discharge their federal loans such as Stafford and Perkins loans because the federal government and ultimately taxpayers stand behind the loans. Also, federal loans offer various payment plans and forgiveness programs, which are generally not available from private lenders.

There are also options other than bankruptcy for people who are struggling with their student-loan debt obligations. Underemployed graduates may be able to find a flexible second job to supplement their income. Others who live in cities with a high cost of living may find some relief by moving to a cheaper area. Finally, borrowers might be able to work out a flexible or short-term payment plan by contacting their lenders directly.

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