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Student loans and bankruptcy: What options are available?

Student loan debts are ballooning. Those who are struggling have options.

Getting a student loan to pay for an educational opportunity is supposed to be the smart thing to do. After all, the loan is designed to pay for the training needed to better one's future earning potential. Unfortunately, this is not always the case. The education that is provided may not be enough to lead to that expected job, the job may not be available or there may be some unexpected terms to the loan that lead to more financial stress than anticipated.

Those who find themselves struggling with debt that includes student loan obligations are not alone. A recent investigation by Reuters dug into the issue, noting an estimated 8 million individuals are in default for government-held or backed student loans. The problem is serious, surpassing the percentage of default loans seen at the peak of the foreclosure crisis in 2010.

Reasons for the rise in student loan debt

Part of the issue involves the fact that many of the programs presented as an option to stop payments for those who are struggling to make financial ends meet may actually result in even more debt. The programs recommended by some private lenders to postpone loan payments avoid default do not stop the addition of interest and fees. This can quickly cause the original amount to balloon into something unmanageable.

Adding to the borrower's financial frustrations is the fact that many of these borrowers may have qualified for government income-based plans that have low to no monthly payment requirements and can result in debt forgiveness after 20 years.

The burden that comes with this debt can have a spiraling effect on one's future prospects. If the loan becomes defaulted, credit scores can plummet. This can deter employers and make purchasing a vehicle or finding housing very difficult.

Unscrupulous prey on the struggling, fraud on the rise

To make matters worse, fraudulent debt relief companies are emerging to take advantage of those who are struggling with their student debt. These companies promise relief, only to charge illegal fees and dues while hacking into accounts. Since the fraudulent company does not actually repay the loan as promised, the borrower can have his or her wages garnished and tax refunds seized - all while thinking the loan is being dealt with on his or her behalf by this fraudulent company.

Tips for those who are struggling with student debt

Two tips for those who are in this situation include:

  • If it looks too good to be true, it probably is. Be wary of debt relief offers that seem too good to be true. The old adage noted here has stuck around for generations for a reason: it's true. Any prospect that seems overly promising may be fraudulent.
  • Options are available. Do not lose hope. There are options for relief that are available and legal.

Determining the best option for your situation depends on the details of your case. For some, bankruptcy may offer relief. Although it generally does not discharge student debt, the process can relieve other forms of debt and free up funds to help regain some financial stability. Contact an attorney to discuss this option and better ensure that your legal rights to financial relief are protected.

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