After bankruptcy, the loan bills keep coming
Unlike credit card bills, auto loans and other kinds of debts, student loans can't usually be dismissed in bankruptcy. According to the Department of Education, borrowers can only discharge their debts through bankruptcy by proving that they have made efforts to pay back their loans, but doing so would permanently prevent them from maintaining a minimal standard of living. The Consumer Financial Protection Bureau also reports cases where private loan borrowers found their loans in default when their co-signer declared bankruptcy.
Before going the bankruptcy route, examine the other options, says Andrew Gillen, research director at Education Sector, a nonprofit education analysis group in Washington, D.C.
"Probably the biggest mistake (borrowers make) is not taking advantage of the existing safety nets," he says. "For federal loans, there's forbearance, there's deferment and there's ... income-based repayment. These are all designed to provide essentially a safety net for students who are getting in trouble with their student loans."
Private loans may or may not have those protections. Many private loans do include deferment and hardship provisions, but rules and eligibility requirements vary from lender to lender.