Take a Ride on the Reading Railroad: Still Think you Can't Get a Student Loan after a Bankruptcy? Skip to main content

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Take a Ride on the Reading Railroad: Still Think you Can't Get a Student Loan after a Bankruptcy?

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Few of us learned much about balancing a checkbook, let alone managing our finances during high school. And for many years credit card companies have been trolling college campuses for fresh bodies to press into servitude. So it comes as no surprise that so many young adults are overloaded with debt. Young people, in their early to mid 20's, are finding out how easy it is to get into debt, and how backbreakingly hard it is to get out of it. Add the present economy and virtual impossibility of securing a decent paying job, and you've got the recipe for a disillusioned, frustrated, and eventually hopeless generation.

It's hard to imagine just starting out in life and being 'in the hole'. Many of these debt-laden young people are still struggling through college, but many have given up on it. The stress of juggling classes, homework, limited job availability, and staving off the debt monster proves to be too much. They end up working two or three low paying jobs just to keep a roof over their heads and to service their debts.

It's a catch 22: they can't go back to school because they have to work to keep up their debt payments; but they can't get ahead on repaying their debts because they can't go back to school to get a better job and earn more money to be able to pay more than just the minimum payments and the usurious interest and fees added on. That's no way to live.

Enter the concept of bankruptcy. Bankruptcy could help many of these young people get off the debt treadmill and get on with their lives. Now, bankruptcy will not be able to get any student loans discharged, (unless the person can show 'undue hardship'), but it could remove the unsecured debt, thereby freeing up money that be used to pay back the student loan debt. Also, the Department of Education has launched a program, passed in 2007, which will reduce student loan payments to a lower percentage of income, or remove them altogether in the case of very low income. Better yet, if the person returns to school, their student loans can be deferred for as long as they remain a full time student.

But what about getting access to more money to pay college tuition and expenses after filing bankruptcy? Many people are under the impression that filing bankruptcy cuts off your ability to borrow money for a very long time. That's partially true, but unlike most credit, government guaranteed educational loans are not based upon credit history or income. They are called Title IV loans, and they must be extended if you meet the statutory and administrative criteria. As long as there are no other eligibility issues, such as a student loan in default or drug conviction, the government is restricted from discriminating against those who have filed bankruptcy under § 525 of the Bankruptcy code , however, there are limits to the amount of government loans you can receive each year.

Although default on an existing educational loan may effect your ability to get a subsequent loan, the filing of a bankruptcy in itself should not. To be sure, filing bankruptcy will affect your ability to secure loans from private entities. But then again, those opportunities wouldn't have been available regardless of whether or not bankruptcy was filed because negative reporting on a credit report would have caused the private loan application to be rejected regardless.

For many young people, filing bankruptcy is a necessary, if unexpected, step toward improving their future. But so is a college education. It is the only long-term solution to their financial woes. And government backed student loans can not be withheld because of a bankruptcy.

If you're having trouble paying your student loans and other debt, consider bankruptcy as an option. Call the Law Offices of John T. Orcutt today to discuss your options. Offices in Raleigh, Wilson, Fayetteville, and Durham.

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