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Bankruptcy and the student loan debt crisis

By now, many New Jersey residents are aware that hopeful college students have incurred more than $1 trillion in student loan debt across the nation. Students are borrowing more than just the actual money -- they are borrowing against their future as well. Unfortunately, many people are unable to make their student loan payments. This debt cannot be discharged in bankruptcy, but that does not mean that filing will not help with the burden.

Student loan companies offer borrowers the ability to put off paying their loans for years. Even when a borrower is forced to begin paying the loans, it is possible to do so at reduced payments. However, what many graduates may not realize is that any unpaid interest continues to accumulate and can become part of the principal balance over time.

Taking advantage of repayment programs such as forbearance, deferment or income-sensitive payments can seem like a blessing at first. In many cases, however, the true impact of student loan debt is put on the back burner and only dealt with when there is no other option. The system seems to be set up to encourage this phenomenon.

Obtaining a college education is supposed to provide New Jersey residents with the tools to improve their lives, but many people discover too late that reality does not meet that expectation. When the federal government enacted legislation to keep student loans from being discharged in a bankruptcy, it only served to increase the burden on people who are unable to meet their earning potential in today's economy. However, other debts can be discharged, which could provide the much needed financial resources with which to pay student loans.

Source: CBS News, "5 surprises behind the student debt crisis", Lynn O'Shaughnessy, March 25, 2015

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