Declaring bankruptcy can offer grads a way to free up cash for paying off student loans.
According to an analysis of the latest government data, the college class of 2014 is the most indebted ever in terms of student loans. They will probably only hold this title for a year though, as debt burdens are likely to increase with each new crop of students. This trend, combined with stagnant or even declining starting salaries for new grads, is leaving many young people in tough financial circumstances before their adult lives really even begin.
Fast Facts on Class of 2014 Debt
- The average member of the college class of 2014 is carrying $33,000 in student loan debt.
- 70 percent of students who earned bachelor’s degrees in 2014 have student loans.
- About 15 percent of students who earned graduate degrees in 2014 have over $100,000 in student loan debt.
- Student loan debt has increased 35 percent while median salaries dropped 2.2 percent.
Students are encouraged to take out student loans because degree holders continue to earn more than individuals without college educations. The prevailing wisdom is to take out an amount of debt that is less than or equal to the amount the student expects to earn in their first year in the workforce. This advice is problematic for several reasons. First of all, it presumes freshmen can accurately predict the state of the economy and their field four years in the future and plan their debts accordingly. Secondly, it ignores the possibility of a student making a reasonable plan as a freshman and then having the school raise tuition every year until they’ve exceeded the recommended amount of debt. And finally, this advice doesn’t take into account the fact that many students also have other debts such as credit card debt or car payments.
Dealing with Debt
Once debts get out of control, it can be very hard to recover, especially if you are not earning what you thought you would. Unfortunately, student loan debt is very difficult to discharge. You need to prove severe hardship for a judge to even consider it. A better approach to debt burdens is to use bankruptcy to discharge credit card debts and other responsibilities and then use the funds that have been freed up to pay off your student loans. A skilled bankruptcy attorney and perhaps also the assistance of a financial planner will be vital in this process. Chapter 7 bankruptcy, which allows for complete discharge of all unsecured debts including credit card bills and medical bills, is a good option for many students to at least consider. With some of their debts relieved, they will be better equipped to get student-debt-free and start building a strong financial future.
