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Student Loan Disasters

By Kurt O'Keefe, Attorney at Law

What with the residential mortgage meltdown and credit card defaults, student loan debt can get lost in the shuffle.

But $740 billion of it is out there, and with jobs hard to come by, repaying student loans can be tough, or, impossible.

Even doctors are having trouble repaying student loans, as shown in a Wall Street Journal story by Mary Pilon.

Many people took out loans believing that the income from the job they got due to the schooling the loans paid for, would be more than enough to re-pay the loans.

Then, with the recession, jobs pay less, and even disappear.

If you did not take out any loans yet, or, are considering getting more student loans, beware! The loan does not go away, and the interest does not go away.

Even in bankruptcy.

In order to discharge, or wipe out these loans, whether in a Chapter 7 liquidation bankruptcy, or a Chapter 13 payment plan bankruptcy, you have to file a separate suit, in the bankruptcy court, and prove it would be an undue hardship on you to repay the loan.

Make conservative assumptions, about what kind of job you can get, and how much it will pay.

Realize money paid for student loans is not available to you to buy a house, or a vehicle, or pay the cost of raising kids yourself.

Don’t believe the hype.

Most colleges are more than happy to have you take out loans, after all, they get the money!

The propaganda in our culture is, “to get a good job, you need a good education.”

You hear it on the radio “the average college graduate makes over a million dollars more over a working lifetime than a high school graduate.”

Hey, college is great.

If you can afford it.

Don’t forget, the four or five years or more that you spend in college, you could be working.  (OK, assuming you can get a job)

That is what the economists call, opportunity cost.

You lose the opportunity to work full time.

Then, look at how much you need to pay.

If you are borrowing $50,000 per year of college, not likely you are going to get a financial return on that amount.

If you had the $50,000, you could invest it, or, buy a pizza franchise!

And, then there would be a return, or payment, on that money.

If you borrow it, you have to pay interest, so there is additional cost.

Hey, student loans make you feel like school is free.

But the piper must be paid, so check for other sources of financing, take time off, work, save some money, commute from home, go to the school that charges less.

Do not be like the doctor in the story, who is on track to pay off her student loans when she is 70.

Student Loan Disasters

Full post as published by Bankruptcy Law Network on February 16, 2010 (boomark / email).