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All About Student Loan Debt

All About Student Loan Debt

Student loan debt is something that most people who have never been to college have never heard of.  This debt consists of the loans that are taken out by a student to pay for his or her college education.  They are among the easiest types of credit for people with little or no credit history to obtain.  While this may seem simple, very few people realize until it’s too late that student loans are treated differently than other types of debt under bankruptcy laws.

Before Student Loan Debt.

For many years, people did not have a concept of student loan debt.  If a person could not afford to college, they often just found a job and worked until they could afford classes.  This method presented a huge obstacle to many people, so by the 1930s the federal government began to experiment with student loan programs.  These loans were given to college students, and were meant to only be paid back when the student graduated and found a job.

Who Gives Student Loans.

Today, the federal government still issues most of the student loans in the United States, but there are a number of banks that have also entered the business.  This came about during the early 1980s, when legislation was passed that made it next to impossible for students to discharge their student loans in a bankruptcy.  At the time, there was a high number of borrowers who were declaring bankruptcy on their loan shortly after graduating.  Unlike other borrowers, these young graduates were not concerned that a bankruptcy could effect their ability to buy a house or car, since they often assumed it would take them years to save for these purchases anyway.  With the passage of this law, many private banks entered into the student loan business, making loans that they knew would have to be paid back.

The Good and Bad of Student Loan Debt.

The positive effect of this law is that there are plenty of options for potential students who need help financing college.  The drawback is that many of these people are discovering too late that they have taken on too much debt for a degree that will not increase their earning potential.  This has led to a high number of defaults on student loan debt.

Defaulting on Student Loans.

It’s important to note that simply defaulting on student loans does not mean a borrower does not have to pay them.  Unlike other types of debt, a borrower’s wages can be garnished in order to pay back their student loans.  The government can also take tax refunds, Social Security, and other benefits.

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