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3 Reasons Why Unemployed Must Use Caution When Taking Out Student Loans

Posted By admin || 25-Sep-2010

3 Reasons Why Unemployed Must Use Caution When Taking Out Student LoansSince the rise of long-term unemployment, many debtors have turned to higher education as a solution. The result is that Americans now collectively owe $829.8 billion in student loans with an estimated $300 billion of those student loans being incurred in the last four years. And while sensible borrowing for higher education is generally believed to be good, many consumer advocates fear that the increased amount of student loans taken out by Americans could have long-term negative consequences. Because of the special nature of student loans in that they are treated as almost unshakeable debt (generally undischargeable in bankruptcy, no statute of limitations etc.) there is little room for error when deciding to take out these loans. That's why unemployed debtors must be careful.

Below are three important reasons why unemployed debtors must use caution when taking out these loans:

  1. Student loans are generally not dischargeable in bankruptcy.  Yes, under certain circumstances student loans can be discharged in bankruptcy; but a discharge for these types of loans is rare.  That means that even if a debtor falls upon hard times, they may not be able to discharge these loans even in a Chapter 7 bankruptcy.
  2. Taking out a student loan to return to school will not guarantee that you will find a lucrative job afterwards.  This fact is important because many unemployed individuals are banking on the hope that their student loan investment in education will pay off with a high salaried job and this may not happen.  Debtors need to make sure that the degrees and programs for which they are paying have a high employment rate and offer the salary they need to survive and repay their student loans.
  3. Private student loans can have very high interest rates and stricter repayment terms than their federal counterparts.  Debtors attending graduate programs often rely on private loans but pay the price later on when they find they are stuck with high interest rates or are unable to defer payments during a financial crisis.
Categories: Student Loans
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