(NOTE: This is the ninth in a ten part series on student loans, check back next Tuesday for the last installment – Jason)
How many people have graduated post secondary school saddled with an outrageous debt from student loans, lines of credit and credit cards, only to spend the next several years slaving to pay it all off? What about those who simply cannot pay it?
Once you have used up all your available interest relief and refinance options, you may be pondering a declaration of bankruptcy in an effort to free yourself from the chains of student loans. You’ve heard that student loans aren’t included in bankruptcy and that is true, but only for the first ten years.
If you are still carrying your student loans past the decade mark, you do have a couple of permanent options. Granted, these options are not for the faint of heart, and really are a last resort for an overwhelming debt.
Option One: Beg for forgiveness. If all you owe is your student loan, forgiveness of the loan basically means it is written off. If you have reasonable grounds, such as severe financial hardship or disability, you can apply for loan forgiveness. There is no guarantee, and the determinations are made on a case-by-case basis, after you must have exhausted all other avenues for relief. This will also appear on your credit report as a bad debt. However, if you qualify, it will mean your student loan account is closed. Permanently.
Option Two: Go Bankrupt: The reality of the situation might bring you to this option. Aside from student loans, you might also have credit card bills, cell phone bills, car loans or other debts that are so far beyond your ability to pay that you have no other choice. As long as your student loan is over ten years old, you may claim it in bankruptcy. Again, this solution is permanent and brings your credit rating to the bottom end, but most people in this situation have already damaged their credit quite badly anyway.
If you’re considering the bankruptcy option, the smart thing to do is talk to a professional. Companies like BDO Dunwoody are bankruptcy trustees, and can look at your overall financial situation and advise you of your options before you commit. This is important, since the fine print of student loans might prevail over the bankruptcy. Refinancing, or extending amortizations might have given your student loan a new lease, meaning the ten-year mark was adjusted to be ten years from the refinance date.
Escaping your student loan voluntarily by way of forgiveness, bankruptcy or even a consumer debt proposal is more than just a dollars and cents solution. Yes, there are long term repercussions, such as credit rating, loss of equity in property, and liquefying all assets, such as retirement savings. However, putting the money aspect aside, the emotional relief of escaping the debt load is often a life altering experience.
Granted, it’s a tough love solution, and initially, you may not feel much pride about it, but overall the anxiety over payments, calls from collectors and threatening letters will be part of the debt you are freeing yourself from. Furthermore, it’s a chance to start over. In time, credit can be rebuilt. In the meantime, you will have the opportunity to relearn how to manage your cash flow, balance your checkbook and decide what kind of life you are working toward. Life after student loans need not be an ongoing tragedy, so when all else fails, you have every right to protect yourself and unburden the debt.