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MA college graduates face mounting student debt crisis

As a follow up to our post last month on student loans, recent data show that over one and ten recent college grads from Massachusetts and around the country fall in to default on their student loan obligations within the first three years of incurring them. The actual number of those graduates not making payments may be much higher, given that some can exercise options to defer payments until a later time without defaulting.

This crisis shows no sign of letting up. Nationwide student loan debt now totals $1 trillion, more than credit card debt. In addition, a continuing sluggish economy means recent graduates may not have the income to avoid defaulting on student loans. Finally, a student and most circumstances cannot get relief from a student loan in a Chapter 7 bankruptcy.

Knowing this, creditors are not afraid to use more aggressive collection tactics to get their payments.

While those who face overwhelming debt from student loans may not be able to get a true "fresh financial start" and come out of a bankruptcy still owing substantial student loans, a Chapter 7 bankruptcy may still benefit them.

Particularly when a college student also has other debts that the student could discharge in a Chapter 7, the trick to a successful bankruptcy involves careful financial planning. For example, a Chapter 7 bankruptcy may afford a debtor some relief from other monthly payment and debts, which in turn may free the debtor to make his or her student loan payments on time. While it may not be a perfect solution, it can still afford a struggling graduate some financial peace.

A Chapter 7 bankruptcy may still be helpful to a person who has student loan debts that will not go away in a bankruptcy. However, these circumstances require more than simply filling out bankruptcy paperwork on one's own and without careful planning.

Source: The New American, "Student loan defaults on the rise as debt crisis worsens", Charles Scaliger, Oct. 3, 2012

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