Drowning in Student Loan Debt?

Few other groups have been hit harder by the recession than the nation’s youth. The unemployment rate for America’s young workers is much higher than the national average at 14.5 percent. More than half a million students have defaulted on their debt since 2008, and in August of last year, student loan debt surpassed credit card debt for the first time in our nation’s history.

Some experts believe that student loan defaults may be the nation’s next housing bubble. Student loans-like mortgages in the 1990s-are essentially available to anyone, and student loans have not followed the trend in mortgage and credit card loans, where qualifications have become more stringent.

Following commencement, graduates are faced with a tough job market that may require them to take on more temporary debt, like credit card debt, to make ends meet while they look for employment. Unfortunately, this can put recent grads in a tough financial position.

According to bankruptcy law, student loan debt cannot be liquidated under Chapter 7 or consolidated under Chapter 13. Both require public and private student loan debt be paid in full, unlike their provisions for mortgages, credit card, and consumer. However, there is an exception to this rule if one can qualify.

Individuals who can prove undue hardship may be able to wipe out their student loan debt. Common examples of undue hardship include poverty, permanent disability and good-faith efforts to repay the loan. Those interested must file a Complaint to Determine Dischargeability of a Debt with the bankruptcy court. Though there is no guarantee the court will grant the discharge, it is worth a shot. Otherwise, bankruptcy can still ease financial woes by consolidating a bankrupt’s other debt, making other loan payments easier to make and leaving more funds for student loan repayment.

Moody’s also lists some tips for those looking to avoid massive amounts of debt after graduation. It recommends putting limits on how much debt one takes on and explore other avenues for funding, like grants, scholarships and working during the high school years. Completing a degree within two or four years and pursuing a degree that is in high demand can also make payments smaller and easier to repay.

Taking on lots of student debt during a time when job security is essentially nonexistent is a precarious action, and getting it discharged through bankruptcy can be difficult. That said, bankruptcy, since it consolidates or discharges other debts, may make monthly student loan payments attainable.