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Private Student Loans, Bankruptcy And You

Posted By admin || 6-Jun-2010

Private Student Loans

Private student loans are a hot topic right now in the news and in the legislature.  Currently, some lawmakers and consumer advocate groups are fighting to make private student loans dischargeable in bankruptcy like other unsecured consumer debt such as credit cards; but there is a lot of resistance.  Right now private student loans, which are student loans issued by private banks and not the federal government, cannot be discharged in bankruptcy unless they present an undue hardship for the debtor. As you may have guessed, few borrowers are able to convince the court that their private student loans or even their federal student loans present an undue hardship.  But for borrowers who have private student loans, the hardship is painfully apparent.  Private student loans are high interest and provide very few options for repayment and forbearance compared to federal student loans, so that even if a borrower falls upon hard times and is unable to repay their private student loan, it can be a lot more difficult to get the lender to work out some type of forbearance or reduced payment arrangement. But one of the advantages of having a private student loan is that while they are basically not dischargeable in bankruptcy, there is a statute of limitations on how long the private student loan lender can sue the debtor in court for payment.  While the statute of limitations varies from state to state, generally speaking, a private student loan lender cannot use the courts to collect from a debtor 6 years after the debtor's loan has gone into default.  However, debtors should be aware that they will still owe the debt and the student loan lender has the right to pursue them for payment indefinitely outside of the court system.

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