The Problem With Student Loans

The problem with student loans is that they align with the rising cost of education. Because college tuition has increased three-fold in the past forty years, student loans have as well. According to a 2021 Federal Reserve student loan debt report, 26% of student borrowers had other education-related debts besides student loans.  Those who have the highest levels of education, or those who quit school before finishing a degree generally have the worst student debt-related problems.  Recent graduates also struggle with debt when they fail to generate a healthy income.  In any case, income levels over the same forty years have not increased at the same rate that debt has, and this is an ongoing problem.

Student Debt Forgiveness Programs

Headlines related to “government student loan forgiveness” have been more prevalent lately. The problem is that many of these promises never come to fruition. (Not to be confused with “The Public Service Loan Forgiveness Program, (PSLFP). Since 2007 the PSLFP has been in place to provide student loan forgiveness for working at a qualifying employer in positions of public service such as a veterinarian, doctor, nurse, or teacher. Yet even the PSLFP program has fallen short of its potential. Furthermore, if your loans were from a bank or other private lender then your access to debt forgiveness programs may be even more limited. Therefore, news stories that waive promises to “pay off existing loans” or offer “free education for all” carrots simply cannot be taken seriously.

The Debt-End Cycle

Waiting for debt to disappear is not a reasonable solution and may result in accumulating more debt over time. When student loan debt is the problem, there are typically other debts as well.  Unless there is a real effort to pay off before accumulating more debt, the cycle continues. All the examples below represent the “debt-end cycle” that feeds into the growing concern over student loans and educational debt.

  • Compared to many other types of debt, student loans are more likely to be placed in deferment. This process extends the payoff date and increases the payoff amount.
  • Where there is student loan debt, there are often other debts as well.
  • Higher education offers degree programs that look good on paper but do not support a career wage that can repay student loans.
  • Students who have credits from a trade school or community college may find it difficult to transfer credits to a university. This means classes may have to be purchased and retaken with each move.
  • Income levels have not risen significantly, yet universities and four-year private colleges continue to increase tuition costs and associated fees.
  • Existing programs such as the PSLFP are proving to be more difficult than anyone realized.
  • Debt from student loans is a major stress and weight on our economy but lawmakers make debt-forgiveness promises that they can’t keep

Deferment Or Forbearance Of Student Loans

The deferment or forbearance of a student loan “postpones” the inevitable.  Whether student loans are federal or private, these types of plans are a temporary, short-term solution to a much bigger problem. As the loan sits, interest rates continue to accumulate more debt. The longer the loan extends, the worse the debt situation becomes. If at any point during the deferment a payment is not made, then the student loan goes into “default” status.  At this point, the financial problem involves parents or other co-signers to the loan. You can be taken to court for the entire unpaid balance of your loan plus interest. It can negatively impact your credit and ability to borrow money, among other things.

File Bankruptcy To Tackle Student Debt

If student loan debt is your only debt problem, then bankruptcy may not be the best solution. However, if there are other serious debts in addition to educational loans, bankruptcy CAN help. (Student debt is becoming one of the top reasons younger generations decide to file bankruptcy.) By eliminating the other debts, filing bankruptcy can “free-up” funds which can then address the student loans indirectly.  Bankruptcy to eliminate student loans for consumers who have serious debt is a bit tricky, but it can be done in certain situations. Are you ready to pay off your lenders? Find out the truth about bankruptcy.

When parents and students sign student loan agreements, they may not be fully aware of what they’re getting into. The opposite is true regarding our bankruptcy law firm. Get sound legal advice directly from one of our highly-rated attorneys, all you have to do is request a “free initial debt evaluation.”

More on this topic:

The Ups and Downs of Student Loan Debt

Top 10 strategies to avoid excess student loan debt

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