By: Jeena Cho
I frequently meet clients who took out student loans to fund their education. Many of them share their regrets and feel they were too naive and young to understand the consequences of borrowing money so freely for the promise of a “better future.” We are all taught to believe the value of a degree and also told that borrowers will be able to pay it back. However, student loans can be debilitating and unlike many other debts, it’s difficult if not impossible to discharge.
Students need much more guidance and education about the cost of their education. My parents encouraged me to go to a state university for my law degree and in hindsight, they were right. A private law school would’ve cost approximately 4x as much as the in-state law school. Do I feel I’m making 75% less with my state degree? Absolutely not.
Student loans are not dischargeable in bankruptcy. Student loan is also defined very broadly. It encompasses all “obligation to repay funds received as an educational benefit, scholarship, or stipend.”
Before taking out student loans, consider the following:
- Is there a cheaper alternative? Consider going to a community college and transferring. You can also consider going to school part-time and working to pay for a portion or all of your education.
- Do your homework. Make sure your school is accredited - especially if it’s an online only school without an actual campus.
- Borrow what’s absolutely necessary. Don’t use student loan money to go on spring break or anything else not related to your education.
- Crunch the numbers. How much will your monthly payment be after graduation? Make sure you do your research and figure out what you can expect to make with your degree after graduation.
- Look into Federal loans before considering private. These often have better interest rates and will offer more options should you have trouble repaying the loan down the line.
What if you already took out too much student loan and have no real hope of repaying it?
- Call the lender. Most programs have a deferment or forbearance program.
- Consider going back to school part time at a local community college. Most student loans can be deferred if you attend school more than certain credit hours. Generally, community colleges are fairly inexpensive and it can be a cheap way to defer your student loans.
- Consider Chapter 13. Bankruptcy will not get rid of student loans. However, if you are being chased down by a zealous lender, Chapter 13 may be an option to keep them at bay.
Many student loan lenders prey on students who are probably too young to understand the consequences of borrowing from the future. Yes, student loan may be a way to build a brighter future, but it can also lead to ruins. I’ve seen it many times. Buyers beware.
