Student Loan Consolidation and Bankruptcy Option Tips

For decades, government sponsored student loans have helped pave the way for millions to get a college education. Following graduation, the loans are repaid over a period of time, and usually with relatively little difficulty. But as tuition has increased in recent years to never-before-seen levels, and interest rates followed with it, and the economy tanked, many former students are finding it impossible to repay their loans. Many graduates have turned to bankruptcy to eliminate credit card balances and other types of debt, but these same graduates cannot expect to wash away their student loans in bankruptcy.

Graduates with overwhelming student loan payments are in for a rude awakening: Student loans cannot be discharged in bankruptcy. The law as it was changed in 2005 affects the repayment of private and federal student loans.

For many jobless graduates with lower than expected income–or none at all–the heavy debt load from student loan obligations has played havoc with their lives, leaving many to try to scrape by and pay loans that in many cases resemble monthly home mortgage payments. Under the current law there are situations where someone can claim a hardship in a bankruptcy proceeding and have their loans discharged, but that's a long shot.

The petitioner must show proof of undue hardship and file a separate petition. The court will review the circumstances and in some cases, if a person can prove he or she either doesn't have or expect to have the income to repay the loans, the loans could be discharged.

If you're drowning in debt and overwhelmed by student loans, consult with a bankruptcy attorney to see whether bankruptcy is a viable option for you. Student loans may be difficult or next to impossible to eliminate in bankruptcy, but that doesn't mean there aren't ways for you to get debt relief.

Need a break on repayment of student loans? Be careful

DETROIT — Grabbing a job, any job, is one way many college graduates grind it out in this tough economy while waiting to make it in their chosen field.

But earning just any paycheck won't cut it when it comes to paying everyday bills — and paying off thousands of dollars in student loans.

So what do you do? Can you delay those loan payments?

Grads having a tough time paying the bills need to know that there are options. But they need to review the rules of available programs to make sure they are not creating an even bigger problem later.

If payments are delayed, the interest keeps building on the initial loan — and graduates will be paying interest on top of interest.

A $25,000 debt could easily turn into more than $30,000 at the end of three years in forbearance, said Mark Kantrowitz, publisher of Fastweb.com and FinAid.org, websites that provide information about scholarships and student aid. Over the life of the loan, the cost could be nearly $42,000.

But many recent college graduates who find themselves underemployed or even jobless have to do something to keep from going into default.

If you owe far more in college debt than you're likely to see in an annual salary for many years, there is an income-based repayment plan that assures a borrower never has to spend more than 15 percent of discretionary income on loan payments. In 2014, the rule changes to 10 percent.

Discretionary income is defined as the amount by which the grad's adjusted gross income exceeds 150 percent of the poverty line for the graduate's family size. This year, that's $10,830 for a one-person household.

The monthly loan payment is adjusted annually, based on changes in income and family size. For some grads, a monthly payment can drop by $200 to $300 — or even to zero in the case of a single grad with no children, a $10,000 annual income and $25,000 in debt from loans

Students Defaulting on Many Loans at For-Profit Colleges

As college students head back to campus, a new report says almost two thirds of student loans at for-profit colleges are not being repaid. The statistic calls into question some for-profit programs' ability to prepare graduates for finding jobs, and the Obama administration has proposed cutting off federal loans to the programs with the worst repayment rates. About two-thirds of students in the class of 2013 said that they were concerned about their ability to pay for college.

With default rates at such a high, we're asking you: How have student loans affected your life in ways you didn't expect?

Mark Kantrowitz, publisher of Fastweb.com and FinAid.org, explains why students everywhere are having trouble paying back their loans. Kevin Krease, a 25-year-old textbook salesman, describes how the pressure of paying back student loans affects his life.