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Student Loan Trap: Is There A Way Out?

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The clock is ticking. It is not long now till it explodes. There is no way of stopping it. The student loan debt currently stands at nearly $1 billion and more and more are getting stuck with it.

It is a vicious circle: every year college students and their parents take out loans to afford college education but given the high unemployment and unstable economic situation and job shortage in the country they often cannot pay the amount due within the loan period. The statistics say there are about 37 million student loan borrowers who are unable to pay back. An average student graduates having a loan debt of about $25,300 and it is hardly a surprise that default rates are so high.

Default is the least desired and, let’s face it, the least possible outcome for the borrower and the government; for one thing it results in impaired credit rating and wage garnishment as well as the borrower being sued for the full amount of his debt.

Anyway, this does not stop many graduates from filing for bankruptcy protection to discharge their education loan debts. That is not an easy thing to do either, for in order to be forgiven student loan debts they have to prove that their paying it will cause “undue hardship” which means, according to a standard adopted by the court district, that a borrower cannot maintain minimal standard of living for himself if made to pay the debt, that he made persistent efforts to pay it back and that additional circumstances exist which make it impossible to return the money such as illness or disability. As practice shows, all this requirements make a student loan debtor practically non-dischargeable.

It used to be very different somewhat 40 years ago when students could get rid of their education loan debts by filing for bankruptcy shortly after their graduation and before they actually had to pay back anything. This practice was changed in 1976 and the bankruptcy laws were made much stricter in an attempt to protect taxpayers’ money. It reached its height in 2005 when the U.S. Congress decided to apply the same rules to private loans issued by for-profit creditors.

It looks like many debtors have now decided to give it up, sustained by the statistics of “undue hardship” court cases that show, their number yearly amounts to only 1,000 which is far less than the real number of those in need of such help.

Nothing could give a brighter example of just how hopeless these attempts can be than a website of a guarantee agency backed by the government, which basically tells its visitors to stop trying, for “undue hardship” claim might be a very drawn-out and exhausting procedure with very little chance for success.

However, people like Michelle Lacey, a professor of mathematics at Tulane University, who has been researching the problem of student loan debt for a while through examining 115 lawsuits in the Washington State, has come to the conclusion that among those who actually try to discharge their loans through bankruptcy 57% managed to partly or fully get rid of it.

Experts say the effect of the whole situation will not be disastrous since about 85% of loans are issued by the federal government, however, the borrowers will be affected anyway for having an outstanding debt they are frequently unable to start a family or go onto further study.


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