How Student Loans are Different Than Other Debt

While we’d all love to simply ignore the debt from student loans, we know that this doesn’t make it go away.
Like all consumer debt, your creditors are expecting all of those funds back… and then some.

Student loan debt and all consumer debt is broken into funnels: secured or unsecured. For those who don’t know, secured debt is when your loan is backed by another person or item to ensure that there are funds or an asset available to clear the debt is needed.

Unsecured debt are types of credit or loans that are not backed by collateral or a guarantor; but instead a promise to pay from the credit holder.

Most student loans fall under the unsecured umbrella, which means that failure to make your student loan repayments will indeed result in some type of collection effort from the creditor.

With no collateral or other guarantor attached to an unsecured student loan, it’s possible that failure to deal with your student loan debt could result in legal action.

This can mean a lawsuit or even the possibility of having your wages garnished.

Here are a few key differences between student loans and other types of consumer debt for you to consider before you take out your student loan:

Bankruptcy does not let you off the hook

Both federal and private student loans are protected by something known as the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.

For other types of consumer debt, bankruptcy may be an option those who feel in over their heads may consider. But when it comes to student loans, the requirements for discharging student loan debt through bankruptcy are pretty tough.

While it’s not necessarily impossible, proving the hardship your loans have created on your day to day, and showing that you’ve really tried to repay the loan has to be made.

No statute of limitation on student loans

While other types of consumer debt – such as credit cards – generally have a 3 to 10 year range when debt collectors are legally able to collect or sue you for the funds, federal student loans do not have a statute of limitations.

While private loans do have a statute of limitation that is set by state governments, there is no running out the clock when it comes to either federal or private student loans.

There is protection with federal loans

Although student loans don’t have the same statute of limitation protections as other consumer debt, the federal government has taken steps to provide other forms of protection from overbearing debt.

Both federal and private student loans offer various repayment plans that can be altered as circumstances change.

The standard repayment term for a federal and private student loans is 10 years, and many student loan lenders also offer some forgiveness programs.

Never try to avoid repaying your student loans. The best thing you can do is communicate with the customer service team at your loan service, and keep them informed of your financial situation.

Even if you are having trouble paying, do what you can to confront your student debt head on… because these loans will come back to haunt you even years down the road if left unpaid.

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