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Things to consider before defaulting on a student loan

Recent proposals by some in the federal government to make available for anyone who qualifies for admission two years of free college education showcases the importance of higher education in today's highly competitive job market. More people than ever are taking college coursework, many by using student loans to fund the endeavor.

Still, having a college degree is not a guarantee of employment. Along with the increased college enrollment figures has come an increase in the number of college graduates in Pennsylvania who still cannot find work or if they do are working in an occupation unrelated to their academic major. For many of these graduates, repaying their student debt can be a daunting prospect. Some may not be able to keep up with their payment schedule, and begin to look for legal ways to either reduce or eliminate their loan debts.

Some years ago it was easier than it is today to discharge student loans through bankruptcy. Under the US Bankruptcy Code as it exists now, however, using bankruptcy as a way out of student loan repayment is much harder to accomplish. The student loan debtor must be able to prove to the bankruptcy court that requiring repayment after the discharge of other debts would pose a "severe hardship." The current setup of the federal bankruptcy laws makes this a formidable hurdle to overcome.

Nonetheless, it may be still be worthwhile to investigate bankruptcy if you are falling behind on your student loan payments, especially when you contemplate the possible consequences if the loan goes into default. Student loan lenders have several possible methods to seek repayment of past-due loan amounts, including seizing tax refunds as well as some federal benefits that you may otherwise be entitled to. There is also the possibility of being subject to wage garnishment, revocation of professional licenses, and even filing a debt collection lawsuit against you. Ironically, such actions might have the effect of realizing the severe hardship that you would need to prove in a bankruptcy petition.

Proving your eligibility to discharge a student loan debt via bankruptcy requires awareness on the part of your bankruptcy lawyer the applicable law and of your unique circumstances. Equipped with this knowledge, your attorney may be able to press your argument for discharge of the loan as persuasively as possible. Retaining legal counsel experienced with bankruptcy law will improve your chances of success in this attempt.

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