Having Problems Repaying Student Loan Debt? You Are Not Alone

In these difficult economic times many graduates struggle with student loan debt for years after they receive their degree. This is particularly so for people with private instead of federal student loans. These private student loans lack many of the borrower protections of their federal counterparts.

When people feel overwhelmed by student loan debt they may not know where to turn. Even though student loans are generally not a dischargeable form of debt during bankruptcy, there are options for relief for people struggling to manage their student loan debt.

Private Student Loans and the Student Loan Crisis

Private student loans often have higher and variable interest rates, which makes them more risky than the fixed rates offered with federal student loans. These variable rates can create unstable monthly payments, and quickly become difficult for borrowers to repay.

According to a recent report published by the Education Department and Consumer Financial Protection Bureau, the subprime lending practices that caused the housing crisis could also be to blame for the current student loan crisis. Private loan originations increased from $5 billion in 2001 to over $20 billion in 2008. After the recession hit, however, these loans decreased to $6 billion last year. Currently, U.S. consumers with private student loan debt owe more than $150 million and over $1 trillion in total outstanding student loans.

The financial institutions behind many private student loans disbursed the money with little concern for whether borrowers would realistically be able to make scheduled payments. The financial institutions then resold the loans to investors in bundles to prevent financial losses whenever borrowers defaulted.

Student loan debt is now the largest source of unsecured debt in the U.S., surpassing even credit card debt. There are currently over 850,000 private loans totaling more than $8 billion in default.

Options for Relief

Neither federal nor private type student loans are dischargeable in a bankruptcy, unless a borrower can demonstrate serious hardship. Filing for either a Chapter 7 or Chapter 13 bankruptcy may, however, still help a borrower struggling to repay student loans each month. Bankruptcy can help to eliminate or restructure other debts to free up funds for student loan repayment.

A bankruptcy attorney can provide further guidance based on your specific financial situation.