Student Loan Debt Traps That Lead to Filing Bankruptcy

student loan debtAccording to statistics, approximately one-sixth of the nation’s adult population has student loan debt. That debt equals about $1.5 trillion in federal student loan debt alone. There is also about $119 billion in private student loans stretching the average American’s daily budget. With those statistics in mind, it’s no surprise that student loan debt is one of the contributors to Arizona bankruptcy filings.

While student loan debt weighs down the month-to-month budgets of many individuals, some companies with questionable tactics trap those struggling to make payments with promises of student loan debt relief.

Companies claim you can’t refinance your loans

Some student loan debt relief companies claim that they are the only way to avoid the large payments that you must make every month. However, in 2009, the Federal government put a law into effect stating that borrowers can refinance their federal student loans. The refinancing allows you to move your federal loans into private student loans.

For some individuals, refinancing federal loans does not make sense. Individuals who are paying back their loans on an income-based program or other forgiveness program are unlikely to benefit from refinancing.

People who are participating in a standard repayment plan for their federal loans might benefit from a refinance though. Don’t listen to relief companies who claim their service is the only way. Look into refinancing first.

Parents who owe loan debt for their children have no options

When parents take on student loan debt to put their children through college, they can be engaging in risky behavior. That’s because many parents with college-aged children are nearing retirement. Retirement puts you on a fixed income that may or may not have the surplus for loan repayment built into.

More than likely, when you started your retirement planning process and calculated how much savings you would need to retire, you didn’t have your child’s student loan debt. And now you have companies approaching you and claiming they can make that student loan debt disappear or pay it off faster. Don’t fall for these claims until you’ve done in-depth research.

Parent PLUS Loans can help parents pay back student loans in their names. Student loans that are in your child’s name with you as the cosigner only become your problem if your child defaults on that loan or cannot otherwise pay it on time.

Becoming disabled has no bearing on your student loan repayment

This is a lie some student loan relief companies make to scare individuals into unfavorable restructuring terms. When you take out a student loan, the collateral in the agreement is your future earning ability. If trouble befalls you and you become disabled, your earning abilities can be affected.

There is student loan debt relief in cases where you become disabled and are unable to work. Before you discuss options with a student debt relief agency, look into your options following a disability diagnosis.

The problem with student loan relief scams

Only in specific circumstances are student loans discharged as part of bankruptcy. In others, you can defer payments while you get back into a place where you can make payments. So bankruptcy does not solve your student loan problems.

However, student loan relief scams can leave you paying larger bills for your loans or extending the payment period to a place where your finances are in a poor place. Poor loan terms might mean acquiring personal loans, credit card debt you can’t pay off or missing payments on your house or car loan. And when you miss these payments, you suddenly have creditors calling and threats to repossess your home or car.

Victims of student loan relief scams that now have unfavorable bills and repayment issues, can find financial relief in filing for bankruptcy. The clean slate bankruptcy offers can be the restart that you need to get back on your feet. Contact us to start the conversation to see if bankruptcy might be what’s best for you.

Find out how to spot debt collection scams in Arizona.