Student Loans Continue to Haunt Graduates

Student Loans Continue to Haunt Graduates-Image by liewcf via Flickr

It’s a cruel surprise to many parents facing a financial crisis: student loans are not dischargeable in Bankruptcy.

With many parents applying for financial aid for their college-aged children, this fact is rarely considered. And with the cost of college going up, and colleges expecting more and more of their expenses to be paid for with debt rather than grants, many parents and students are finding that most of their debt is non-dischargeable student loans.

“Every day I have someone come into my office with a mountain of debt,” says Warren, MI Bankruptcy attorney Michael Greiner of the Financial Law Group and “It is often heartbreaking to see that there is nothing I can do for these people.”

Greiner said that many students are graduating from college getting jobs that barely enable them to pay their student loans and nothing else. “This is one of the untold stories about the economic crisis,” Greiner said. “Though the government has taken steps to address this problem, it is still too little, too late.”

Greiner also pointed out that more and more of the student loans available are private students loans, not backed by the government. “Sallie Mae has even gotten into the act of financing private student loans,” Greiner said. “The interest rates on these private loans are typically much higher than for government student loans.”

Greiner did make some suggestions to parents trying to determine how to pay for their children’s college expenses:

  1. Read the fine print and stay away from private student loans: just because a loan is from Sallie Mae or similar entity, doesn’t mean it is a lower interest loan. Check the fine print to make sure you’re not getting a private student loan with high interest rates. In fact, nowadays, student loans that are not financed by the U.S. Department of Education are likely higher interest, private student loans.
  2. Use alternatives to student loans – credit cards and home equity loans can help finance college: Even if these kinds of debt are used for educational expenses, they are usually still dischargeable in a Bankruptcy case if you find yourself in a financial crisis, Greiner said. Furthermore, he pointed out that for someone who has good credit, the interest rates on credit cards and home equity loans may be as low if not lower than for some student loans.
  3. Start paying it off as soon as possible: One often-cited advantage of student loans is the ability to defer payments. The problem is, however, that deferrals don’t stop interest from increasing. In fact, even for relatively low-interest student loans, with compounding interest, deferrals can take a manageable debt-load and make it unmanageable relatively quickly.


Greiner said that the real solution to this problem lies in Washington. “Congress should loosen up on the ban on discharging student loans,” Greiner said. “I suggest that interest should be dischargeable, but not the principal. And private student loans should absolutely be dischargeable. But the current situation is untenable, even with the reforms recently made by the Obama Administration.”

Greiner is the founder and President of the Financial Law Group, a Detroit-area law firm specializing in Bankruptcy. He has represented thousands of individuals, businesses and creditors in Bankruptcy. He is also the writer of the recently-published Bankruptcy 101: An Insider’s Guide to Filing Chapter 7 Bankruptcy on your own without an Attorney, and he is the creator of the website ( which assists individuals in filing Chapter 7 Bankruptcy without an attorney. He blogs at

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