Monday, July 1, 2013

Student loan rates hike and bankruptcy

The money 7 million college students are expected to borrow this year just got more expensive.
Overnight loan rates on subsidized federal student loans doubled to 6.8%.  While members of congress promise to work on the issue through the summer, million of college students face renewed worry about the price tag of a college diploma.

Student worries concerning debt are well placed.  On average 2013 graduates face $35,200 in college related debt according to a recent Fidelity survey of 750 college graduates.  Student loan debt is second largest debt most consumers carry after mortgages.  However in matters of bankruptcy, student loan debt can be far more troublesome for consumers.

"Students need to consider their loans permanent until they are fully paid.  Unlike a mortgage loan which is tied to an asset which a consumer can give back and then discharged, student loans do not have the same flexibility," said Gerald Moton, San Antonio bankruptcy attorney.

This means a consumer who is in trouble and unable to pay a student loan has limited options.  Student loans must be repaid and in most cases, can not be cancelled even if a student did not enter an expected career field. In different cases, consumers can request a temporary forbearance, deferment and payment plans.  It is extremely rare a student loan can be cancelled.

Bankruptcy in most cases only offers limited protection for consumers concerning student loans.  During a Chapter 13, creditors including student loan lenders are prevented by the court from attempting to collect a debt.  Sometimes this allows consumers time to improve a financial situation so they can repay their student loans.  However even through bankruptcy in most cases, the court does not allow student loans to be discharged.  Only in rare cases where the court finds repayment of a student loan would cause undue hardship is a discharge allowed.

"Students and their parents really should consider these issues when evaluating borrowing for an education.  Student loans are now more expensive than they used to be and they can carry expensive consequences far into adulthood, " said Mr. Moton.


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