Faced With Large Debts, Many Students Default on School Loans
One of the biggest financial stories of 2012 has been America's record amount of student debt, which recently exceeded $1 trillion.
Now it seems students are breaking another record, say DebtStoppers bankruptcy attorneys.
The number of borrowers who defaulted on a federal student loan within two years of their first payment is on the rise, jumping to 9.1 percent in 2011 from 8.8 percent in 2010.
While it may seem like a modest increase, the spike represents a total of 375,000 students unable to make good on their loans, according to story on CNN Money this week.
To be considered in default, borrowers must miss payments for at least 270 consecutive days.
Default rates began their uphill climb in 2007, suggesting that the economy plays a big roll in students' abilities to repay debts.
With many college drop-outs - and even graduates - unable to find well-paying jobs, student loans often take a backseat to making rent, utility and car payments.
Private for-profit colleges had the highest rates of default, with more than 22 percent of student borrowers defaulting within three years of their first payment. Public schools had a rate of 11 percent and private non-profits had just a 7.5 percent rate.
In some cases, borrowers may be able to postpone payments under deferment or forbearance plans. Unfortunately, many borrowers become so stressed about making debt payments that they miss the window to take advantage of crucial relief options.
Often times, folks are simply in denial about their debt. People who owe more than they can realistically afford to pay frequently ignore their finances, hoping they will eventually find a way to discharge the debts. Instead, they wind up in default, with fees and wrecked credit to boot.
The problem is that bankruptcy - while often the most effective solution to getting rid of unsecured debts like credit card debt - is rarely able to relieve student loans. But that doesn't mean hope is lost.
Though bankruptcy can't eliminate student debt, it can reduce many other forms of debt commonly held by students. Bankruptcy has the power to wipe out credit card debt, eliminate liens, halt creditor harassment, relieve medical debt, and even stop foreclosure.
The sooner you recognize your finances are in trouble, the sooner you can take the appropriate actions to improve your situation. By eliminating some debts with bankruptcy, borrowers can create the financial flexibility necessary to stay current on the debts they can't escape.
Wondering if bankruptcy could be your ticket to financial freedom? Call DebtStoppers today at 800-440-7235 to schedule a complimentary personal debt evaluation with one of our bankruptcy lawyers in Chicago, Atlanta and Tennessee.
More Blog Entries:
Compared with Bankruptcy, Mortgage Modifications Do Little to Help Housing Crisis: September 28, 2012
Fed Lowers Mortgage Rates, but Bankruptcy May Be Better Solution for Homebuyers: September 18, 2012
Additional Resources:
Student Loan Default Rates Jump, by Blake Ellis, CNN Money