Tuesday, March 27, 2012

Student Loans and Bankruptcy

This economy has led more people to consider bankruptcy. You can eliminate most debts, including credit cards. But you cannot get rid of a student loan.

It may sound odd, but a private bank that loans you money with a credit card will have the credit card debt discharged at bankruptcy. But a private student loan from this same bank cannot be done away with. Beware of this fact if you get private student loans. These are the same rules as the Federal student loans.

Since all direct loans are handled by the federal government, when you borrow the money, you owe the taxpayers this money. It's essentially who you borrowed it from. Taxpayer debts are hardly ever discharged. Student loans are no exception. You cannot get a student loan discharged. You will owe the money basically forever, or until you pay it off.

Private student loans were not originally in this agreement passed by congress in 1976. Before this time, all student loans were eligible to be discharged at bankruptcy. In 1984, private student loans were also added.

Private student loans are really one of the most expensive loans you can get, as far as college debt goes. Avoid private student loans. Even though you cannot discharge a federal student loan, you have many more options as far as paying it back goes. You can get deferments, as well as get student loans forgiven for various public services.

The best thing is to really not get any loans for college. Borrow the least. And above all, only go for Federal student loans.

These rules were set up so that people could not just sign up for college, then declare bankruptcy to get out of paying the loan back. Also, it makes starting college a serious decision. Make it wisely.

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