Fearing personal bankruptcy, students demand loan solution

Student loans provided by the federal government are a financial tool that many Mississippi students, as well as those throughout the country, use to pay for college and other graduate programs. Although they play an integral role in positively shaping young adults' lives, the loans can also pose a significant burden, and, ultimately, be one of the causes of personal bankruptcy.

Several student body presidents, including one from Mississippi State University, have banded together to urge Congress to find a solution to the long-term financial challenges created by student loans. In particular, they delivered a petition to lawmakers on Capitol Hill, demanding that they address student-loan interest rates.

The rates are scheduled to increase on July 1, 2013. Currently, they are 3.4 percent, and will increase to nearly 7 percent. This increase will result in nearly a $1,000 additional burden on student borrowers. The student and school representatives want more predictable, manageable loan terms. They have requested that Congress keep interest rates low and make repayment options simple.

As the uncertainty around student loans looms, it is imperative that student borrowers in Mississippi have a good sense of their financial options. This is particularly true if Mississippi student borrowers feel that they cannot eliminate debt without filing for personal bankruptcy.

First, it is important to establish manageable payments so as not to default on student loans. Second, if default does occur, it is useful to understand the steps that the government can take to recover the loan. It can garnish your paycheck, take your tax refund and even sue you. However, some of these actions are avoidable, especially if you have filed for personal bankruptcy. A student borrower, who has filed for bankruptcy, can assert a defense -- if the bankruptcy case is still pending or the loan has been dismissed.

Student loans come with many considerations. Understanding their immediate, as well as future impacts, on your financial and professional future is key to determining whether borrowing is the right decision for you. Nonetheless, for those that are drowning in debt, personal bankruptcy can be a lifeline to a fresh financial start.

Source: The Huffington Post, "Student Debt: Congress Petitioned By College Leaders For 'Long-Term' Solution," Zach Carter, June 19, 2013.

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