The Ups and Downs of Student Loan Debt

The perplexity of the student loan debt problem in our country resembles riding a roller-coaster. The ups, downs, twists, and turns can certainly leave a head spinning. The one thing that is clear is that Americans have more student loan debt than any other type of debt. According to the U.S. Department of Education, 94% of all student loan debt is in federal student aid. When that money isn’t paid back, the government is going to find a way to recover it.

Federal Student Loans And The American Dream

In Wisconsin and across the United States, people from every corner have access to higher education. Federal loans are at least partially responsible for this. The chance of being approved for a Federal Student Loan, such as a Stafford Loan, is almost a sure thing. Unlike with a private lender, your credit history is not a factor for federal education loans. Federal programs offer deferment during difficult times, repayment plans based on income, and some forgiveness options for public service employees. The ease of receiving a Federal Student Loan makes the dream of going to college a reality. This is the “up-side” of federal student lending which is appealing to most students, and the reason so many chose it.

Down-Side Of Federal Student Loans

The opportunity to go to college is an honorable one, but because of the cost of education, it also involves borrowing a lot of money. Those who drop out of college are left with loans to pay off. Those who graduate but don’t make enough money to pay back the loans will struggle. There is a multitude of reasons why paying back federal student loans is a challenge for so many people. The problem of increasing student debt is real. It would be great to see a combined effort on the part of student counselors, lenders, colleges, our legal system, and others to prevent this problem from continuing. In the meanwhile, you may need options to get out from underneath education loans that hold your financial future hostage.

Student Loans and Federal Bankruptcy Laws

Prior to 1976, student loans were dischargeable in bankruptcy.  However, there was a big concern back then that too many loans went into default.  As a result, Congress passed laws to protect Federal Student Loans, basically, laws that would protect these government investments.  Private student loans weren’t impacted until 2005 when the BAPCPA, Bankruptcy Abuse Prevention and Consumer Protection Act was passed. This is the current law that makes directly discharging student loan debt nearly impossible. People today, including some politicians and presidents, feel that our government is profiting too much from Federal Student Loans, including the defaulted ones. Others point to the increasing costs of education as the problem. Until there is some consensus on this issue, it may not resolve in our lifetime. This means that you need to consider alternative approaches.

Convert Unsecured Loan Into A Secured Loan

With secured loans, a lender has some sort of collateral from you to “secure” the loan. Typically, these types of loans come with a lower interest rate and are also easier to obtain. Interestingly, federal student loans are not secured loans. If a parent or sponsor agrees to co-sign, unsecured federal student aid is given to students with little to no credit history. The problem is that the loans come with a big price tag; bigger than most people expect. At some point, you may realize how difficult it can be to pay back a large student debt. If this happens to you, consider converting the “unsecured” loan into a “secure” loan. Some people do this by filing for bankruptcy to pay down on or eliminate other outstanding debts. Over time, the funds that are freed up can pay off your student loans.

Wisconsin Debt Advisors

If you live in Wisconsin and have questions about student loan debt, or any kind of consumer debt that you may have, contact Debt Advisors. If your student loans can’t be consolidated or discharged in bankruptcy, we can steer you in the right direction to possibly get them consolidated or forgiven.  Request a free debt consultation. In many circumstances, we can identify other areas of your economic situation that can be addressed and have a positive impact on your financial future. No question is a silly question. We encourage and respect your inquiry.

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The Problem With Student Loans

Top 10 strategies to avoid excess student loan debt

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