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Sunday, September 15, 2013

Could Student Loans Ruin Your Future?

“Neither a borrower nor a lender be,” advised Lord Polonius to his son Laertes in Shakespeare’s Hamlet. But few Americans seem to have taken his advice. Ever since the Diners Club Card was introduced to the masses back in 1949, consumers have been struggling with the temptation to overuse that little, seemingly innocuous piece of plastic. According to a study done by the Federal Reserve Bank of New York, the average American household vastly underestimates its debt. And creditcards.com found that the average household has over $15K of debt.

But there’s another kind of debt creeping up on American consumers – student debt. According to FinAid.org, total student debt surpassed credit card debt in the summer of 2010. Currently, the site’s “debt meter” clocks outstanding debt for students in the US at approximately $1 Trillion (and increasing by the minute). This is not surprising given that the cost of tuition has increased significantly; on average, college seniors now graduate with $25,000 in debt. And that rate can increase for graduate programs. Law students and medical students often graduate with debts in the six figures.

Regardless of magnitude, debts must be repaid.  Those who are able meet their minimum monthly payments often end up paying as much as 40% of the principal in interest over the life of the loan.  Those who are struggling with making their payments cannot rely on bankruptcy to provide relief.  For most, filing for bankruptcy will not discharge student loans unless the debtor can demonstrate “undue hardship”.  While the definition of “hardship” varies from state to state, it is generally a difficult standard to meet. Chapter 13 bankruptcy, which reorganizes debt requires the debtor to pay off the interest. Student loans rarely fall under Chapter 7 bankruptcy, which liquidates debt altogether.

Students who are in default should be aware that the Internal Revenue Service can withhold tax refunds to pay off creditors for overdue student loans. Additionally, creditors can garnish wages without even filing a lawsuit against the debtor in question. As the recession forces more and more people to seek lower-paying jobs, it’s important that those contemplating higher education keep in mind the long-term affects of student debt and determine whether they will be able to realistically pay back the debt they take on. If not, the consequences may be devastating.


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Serving Southeastern Wisconsin, with offices in Milwaukee and West Bend, Affliated Attorneys, LLC represent clients throughout Milwaukee County, Washington County, Waukesha County, Dodge County, Ozaukee County, Racine County, Sheboygan County, Jefferson County, Fond du Lac County and Walworth County.



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