Should bankruptcy be an option for private student loans?
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Consumers Union Renews Call for Student Loan Reforms As Congress Takes ... - Imperial Valley News

Consumers Union Renews Call for Student Loan Reforms As Congress Takes ... - Imperial Valley News | Should bankruptcy be an option for private student loans? | Scoop.it
Consumers Union Renews Call for Student Loan Reforms As Congress Takes ...
Imperial Valley News
Private student loans can come with high, variable interest rates, and unlike federal loans, they do not come with guaranteed flexible repayment options.
Markeda Payne's insight:

According to Marcia Clemmit, student debt surpassed credit card debt in June 2010 for the first time in history, rising to $830 billion which is nearly 6 percent of the nation's annual economic output. As a result, student have turned to both private and federal student loans to pay for school. However, once they graduate they are unable to repay their debt.

Students who have to take out private loans should be able to seek bankruptcy because of the lack of protection and higher interest rates. Private loans are always more expensive than federal loans because of their high interest rate. The National Consumer Law Center (NCLC) conducted a report that showed the APR interest rate for private loans is an average of 11.5% which is higher than the fixed APR for federal loans (United States). Also, private student loan borrowers do not have access to loan repayment options such as federal student loan borrowers. Borrowers who take out private loans have to rely on their lenders to provide some type of option to relieve their financial stress.

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Bankruptcy Should Be An Option For Some Student Loans

Congress should create new classifications for both federal and private student loans, and open them up for discharge in bankruptcy, the Center for American ...
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Due to lack of alternatives that private studen loan borrowers have, bankruptcy should be an option. It should be removed from the non-dischargeability category and also should not be determined by the "undue hardship" system. By private loans not being protected by the government, their relief options are soley determined by their lenders; in some cases, still leaving them unable to pay off their debt.The National Consumer Law Center found that although lenders offer flexibility plans they do not offer income based repayment plans such as federal loans. Also, lenders rarely cancel loans even in the case of death or severe disability whereas that is a guarantee with federal loans (United States: The Role of Private Student Lending). Default and delinquency are other issues that occur with federal private loans. If a payment is a day or two late, lenders can declare default on the borrower (United States).

Given these point, bankruptcy is the only option for private student loan borrowers because of the lack of alternatives. If there were more options such as the repayment plans for federal loans, then there would not be an argument for private loans to be discharged in bankruptcy. Although undue hardship is available through bankruptcy, it is not a fair system. It does not give borrowers an equal opportunity to present their case of financial distress. 

 

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Private Student Loan Borrowers Struggle With Lenders, Report Finds - U.S. News & World Report

Private Student Loan Borrowers Struggle With Lenders, Report Finds - U.S. News & World Report | Should bankruptcy be an option for private student loans? | Scoop.it

University Herald
Private Student Loan Borrowers Struggle With Lenders, Report Finds
U.S.

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Lenders have attempted to offer some flexibility for loan repayment however it does not help borrowers manage their debt long term. As a result, borrowers may go into default. However, when federal student loan borrowers go into default, they have various repayment options to get out of default. If private loans are going to be available then lenders should find a way to make them more affordable. Also, all information pertaining to private student loans should be discussed thoroughly before a student decides to take on that financial responsibility (United States: The Role of Private Student Lending).

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