Bankruptcy, College Students, Student Loans and Credit Card Debts

01 Jun Bankruptcy, College Students, Student Loans and Credit Card Debts

Bankruptcy is something that students may find themselves considering upon graduation. College students face huge financial burdens obtaining their education, counting on getting a good job to pay them off. The problem is that many are unable to find work that covers all their necessary living expenses, and their debts. Even if they find work it may not be enough.

Most college students would agree that they wouldn’t be in a position to buy a house and start making mortgage payments the day they graduate, but many start out their professional lives burdened with debts and student loans as large as a typical mortgage.

Student debt comes in different forms.

Credit cards or traditional loans: Many students use credit cards to pay for living expenses and school, intending to pay them off with the great job they get after graduation. The problems arise when they learn their dream job can’t be found, but the debts are an immediate nightmare. As payments are missed, credit scores plummet, balances build up, collection calls and lawsuits follow soon.

Student Loans / Educational loans: Student loans are another matter and a looming financial crisis. It is bad enough to take out student loans for tuition costs, but today’s students are being lent money to cover living expenses under the umbrella of an “educational loan“.

These educational loans allow someone to live comfortably, without income. Many students are borrowing enough to replace an average worker’s salary for each year in college, plus cover tuition and books.

  • Unfortunately, student loans have no shelf life — they will follow borrowers FOREVER.

If someone was out of work, they would not think to borrow a year’s salary and continue to live as though they were fully employed. They would likely cut back on expenses as much as they could, perhaps sell their car, move in with relatives, and make other efforts to use as little money as possible.

Unfortunately too many students use the whatever loans they can get to keep up a fairly comfortable lifestyle, often in their own apartments (even in the same city as their parents live), financing a car, buying clothes, groceries and eating out.

Many young students come out of school, never having held a job, and owing tens of thousands of dollars for their education, PLUS what they spent on living accommodations, car payments, groceries, pizza, beer, utilities, and so on.

The lender won’t care if the student doesn’t find a job, or the job they find isn’t enough to cover the payments and bare living expenses. They will tack on as much penalties, fees and interest as they can get away with.

If the loan is a student loan / educational loan, then that loan may accumulate those costs forever. Since bankruptcy doesn’t discharge student loans except in rare circumstances, there isn’t any way to get away from these debts. Ever.

Student loans may also collect in ways other creditors might not be able to do, such as taking your tax refunds.

Before you borrow, think about whether or not there is something you can do to cut back on spending so if you must borrow, you can borrow less. Years from now, I assure you that you don’t want to still be paying for a car long replaced, the pizza you ate freshman year, an outfit for a school party, or a spring break vacation ……….. plus interest.

To deal with this crisis, there is talk about changing the bankruptcy laws to allow some dischargeability of student loans, but no one should count on that happening. Education is valuable, but not necessarily worth the cost of these loans.

For help with student loans, you might look at the following web site for Student Loan Borrower Assistance

The site includes information on repayment options, avoiding and getting out of default, dealing with collections agencies, and much more.

See also:

Credit Law Network: Should You Guarantee A Student Loan? By Douglas Jacobs California Bankruptcy Attorney on May 11, 2009

Bankruptcy Law Network Jun 29, 2008 Can I Support My College Age Children and Still File Chapter 7? by Jonathan Ginsberg, Atlanta Bankruptcy Attorney

Bankruptcy Law Network Dec 28, 2007 Children’s College Education At Risk If Parents Are Bankrupt by Susanne Robicsek Charlotte NC Bankruptcy Attorney





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Concentrating in Consumer Bankruptcy Law since 1988; Wake Forest Law School JD 1987 Law Office of Susanne M. Robicsek since 1993, Law Clerk to Judge Rufus Reynolds, US Bankruptcy Judge for Middle District of NC; Burns Price & Arneke, PA, David Badger and Associates, PA.

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