Column-bankrupt? How To Get Student Loan Debt Erased

The proceeds from these loans are increasingly being used to cover daily living expenses, and not tuition or other college-related costs. Low-rate student loans cover tuition, textbooks and a vague category known as living expenses. The figure for living expenses is determined by each school and can make it easier to get a student loan than a more traditional loan from the bank. The federal government performs no credit checks for most student loans. An article by the Wall Street Journal examines the rampant use of student loans for non-college expenses.

Reuters/Keith Bedford Maybe its just a sign that the markets are getting overheated :Americans are taking out student loans in part to cover everyday expenses. The Wall Street Journal reports on this phenomenonin which borrowers are using student loans as stop-gap financing to cover everything from monthly bills to groceries to previous student loan payments.The development is particularly troubling as student loans hit astaggering $1.1 trillion, and as college tuition costs continue to rise . While some of the growth in student loans is attributable to people seeking more education, the Journal explains, these loans are attractive for other reasons too: For one thing, many of those seeking student loans can avoid credit checks. This combination of rising costs and opportunistic borrowers leaning more on ever-growing student debt seems like a recipe for trouble. The only consolation is that the private banking system may emerge relatively unscathed.

Sometimes they come to agreement and sometimes they don’t, but the resulting regulation is almost always more meaningful than if the process hadn’t taken place. The credit criteria required for Parent PLUS loans, which are loans taken out by parents for their undergraduate students, is one issue under scrutiny during this latest negotiation. While Parent PLUS borrowers are checked for past adverse credit, they do not have to undergo a debt-to-income or other ability to pay test in order to qualify for a loan. Consumer watchdog groups that have seen PLUS debt levels rise in recent years as parents’ college savings were hit by the recession argue that Parent PLUS loans can saddle families with debt they cannot afford. They advocate for a more stringent credit check process that factors in parents’ ability to pay. [Get additional advice on how to pay for college .] Others, particularly minority-serving institutions students who often rely on PLUS loans, feel that tighter credit criteria will be detrimental to access to higher education.

The answer to this classic chicken-or-the-egg problem could lay with crowdfunding , which not only presents an opportunity to get tuition loans to students who need them, but also to build a track record of repayment that will encourage financial institutions to offer more loans to students. uses crowdfunded student loans to help people in regions where higher education is out of reach but job opportunities exist for graduates of colleges and technical and vocational schools. The nonprofit partners with local organizations and micro-finance institutions (MFIs) to create tuition loan programs for students who are close to graduation but need money to pay final tuition in order to graduate. Loans average $750, and a repayment rate of 99 percent, which shows that students will pay back their loans if given the opportunity. As students continue to successfully repay their loans, they are creating that repayment history and opening the door for millions of other students in the future. Beginning on April 2, all student loans sourced by will be posted on Kivas website for crowdfunding rather than on the Vittana website.

Student Loans Entice Borrowers More for Cash Than a Degree

However, graduate students can borrow as much as they want, which results in some law, medical and dental school graduates owing $100,000 and often significantly more. That $1 trillion in student loan debt could have a huge impact on the economy and be felt for years. Those with hefty loans are crippled in starting their careers. Some may need to intentionally default on their student loans to be able to open the dental or medical practice that is needed to pay for them. Their debt load traps students. The economics and the weight of the debt, which can take 15 to 20 years to repay, impact future decisions like where to live, buying a house, discretionary money for daily living, and saving for retirement.

Even when schools suspect students are over-borrowing, they are restricted by federal law and Education Department policy from denying funds. College and university trade groups are pushing legislation this year to set lower maximum loan limits for some types of students, such as part-timers. Dorie Nolt, spokeswoman for Education Secretary Arne Duncan, says the Obama administration is “exploring alternatives to see how we might ensure that students don’t borrow more than necessary.” Student Loans Used for More Than School Play video Mr. Selent, of Fort Lauderdale, knows he is getting himself deeper in a hole but prefers that to the alternative of making minimum wage. In his 20s, he earned a bachelor’s degree in communications from a local for-profit school but couldn’t find a job in the field after graduating and began falling behind on his student-loan bills. He is now taking courses for a degree in theater so he can become an actor.

Based on the characteristics of those who were able to get discharges, researcher Jason Iuliano calculated that an additional 69,000 people who filed bankruptcy that year would have had a “good chance” of erasing their student loans had they filed adversary proceedings. Iuliano speculated that one reason so few student loan borrowers seek relief is that they’ve been convinced it’s hopeless. He cited academic journals and numerous popular press articles indicating such discharges are almost impossible. Debtors are sometimes told that absent a total and permanent disability, they can’t get their loans discharged. There may be another reason.


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