American student loan debt tops $1 trillion, according to the Consumer Financial Protection Bureau. But with many recent graduates facing a tough job market and limited employment opportunities, what happens when they cannot afford their monthly student loan payments? If a parent co-signed the loan, the burden shifts to them.
Bankruptcy attorneys are seeing an increasing trend with parents struggling to pay off their child’s student loans. Unfortunately, even bankruptcy cannot wipe the slate clean- unless of course undue hardship can be proven. Al Franken, on the Senate Education Committee, said that he has backed several pieces of legislation he thinks could help. One example is the Fairness for Struggling Students Act, which, if passed, would make it possible to eliminate private student loan debt in bankruptcy. Franken has also backed legislation that aims to help students receive better counseling when taking out a loan.
Experts say parents can and should co-sign their child’s student loans, but must be “informed borrowers,” meaning they need to closely scrutinize the terms of the loan. Many banks are getting out of the student loan business, largely because of the increased scrutiny from lawmakers. JPMorgan Chase announced its departure just a couple of weeks ago. Bank of America, Citigroup, and U.S. Bank have already done the same. So for future borrowers, it means more student loans will come from the federal government.
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