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Student Loan DebtStudent loans can be great thing. They can help people achieve a higher level of education than they otherwise would not have had the opportunity to pursue. But, student loans can also be the bane of many families’ existence.  Lenders will dole out thousands upon thousands of dollars in student loan funds with no collateral to back it up.

Why, you may ask? Well, the lenders’ lobbyists were quite persuasive to Congress, so laws were passed that prevent student loans from being discharged in bankruptcy except under the most dire of circumstances. So now you have thousands of colleges and universities advertising that borrowing obscene amounts of money to pay for a higher education is just the American way.

Almost no one is denied, regardless of credit, so an 18-year old kid with no credit history can borrow $50,000 or more to pay for college.  While necessary, there is a problem inherent in almost every 18-year old.  The are impulsive! I remember being in college and seeing my friends pay down credit cards and buy high priced toys (like motorcycles and huge entertainments centers) with their student loan money.

This is, to put it mildly, a huge mistake.  Because student loans cannot be discharged in bankruptcy, whenever you pay off a credit card with student loan funds, you are turning a debt that can easily be wiped out in a Chapter 7 bankruptcy into one that will follow you around for the rest of your life.

I’ve read stories of individuals making $35,000 per year with over $100,000 in student loan debt.  Someone like this will likely never pay off the full balance of their loans. Fortunately, there are options out there like the income based repayment plan and public loan forgiveness program, but private lenders may not offer such options.