Kansas City Bankruptcy Attorneys Analyze Alarming Reports
Student loans are some of the most common forms of debt facing Americans, and not just by students. Many parents have taken out loans to pay for their children’s college educations, and as some recent reports show, this is causing many parents and grandparents to fall into serious financial trouble. Our Kansas City bankruptcy attorneys explain how a bankruptcy might affect your or your child’s ability to apply for and continue receiving student loans.
How are Parents Affected by Student Loan Debt?
If you are concerned about the effect your child’s student loans might have on your own financial status, you are not alone. According to the Federal Reserve Bank of New York, two million Americans over the age of 50 have outstanding student loan debt. Debt among older Americans has reached $50 billion nationwide, much higher than past years. Overall, the country owes more than $1 trillion in student loans, and 27 percent of that debt is held by those aged 50-64, according to the Government Accountability Office.
If you take out a loan to help your child, this could affect your retirement and Social Security benefits. The government may end up garnishing these benefits to cover student loan debt if you fall behind on student loan payments, whether for yourself or your child. This means that many parents and grandparents are struggling to stay afloat, especially if they also have credit card debt or are falling behind on a mortgage.
Will Bankruptcy Interfere with Student Loans?
The answer to this question depends on the type of loan you or your child took out: federal or private.
Most parents apply for a PLUS loan from the federal government through their child’s college. College financial aid administers legally cannot cite bankruptcy as a reason to deny loans, but they may well consider an applicant’s overall credit history. PLUS loans require a credit check, and if you are already considering filing bankruptcy, your credit might be adversely affected. If you are in a downward financial spiral, bankruptcy offers you a chance to start fresh and improve your credit rating over time. If the parent is denied a PLUS loan for any reason, the child can apply for an unsubsidized loan solely in his or her name.
Private loan lenders have more leeway to consider bankruptcy as a reason to deny a loan. However, a parent’s bankruptcy will not impact their child’s ability to take out a private loan by him or herself.
Should I Take Out a Loan to Pay for my Child’s College?
Financial advisors typically suggest that students take out loans themselves instead of their parents, since students have more time to pay them back. Parents facing student loan debt stand to lose portions of their retirement and Social Security benefits.
While student loans (whether taken by students or parents) are notoriously difficult to discharge through bankruptcy, it is not impossible. Hardship discharges are available in the right circumstances. Our firm has had a great deal of success working with clients struggling with student loans. Filing bankruptcy could also free up additional funds to cover these extra expenses. To learn more about how a bankruptcy might affect your or your child’s student loans, contact a Kansas City bankruptcy lawyer. These decisions can have serious effects on your financial future: make sure you are making the best decisions for you and your family.