- December 4, 2020
- Posted by: Carter Davis
- Category: Knowledge Base
When you undertake student loans for the first time, you may consider them a necessary step in your education. However, student loans are the second-largest source of debt in the country, so it’s important to remember that student loan debt can come with all the consequences of any other type of debt. If you have student loan debt, it’s important to educate yourself on how student loan debt is different from other types of debt so that you can make the right financial steps to resolve it.
Student Loan Debt Is Often Unsecured
Unlike with many other kinds of debt, people take on student loan debt only with the promise they’ll pay it off. This kind of debt is unsecured debt, as no collateral is associated with it. With a secured auto loan or mortgage, the collateral is your car or home; collection agencies can take that away from you after enough missed payments. However, because your student loan debt often doesn’t have collateral associated with it, it’s unsecured. Some private lenders may allow you to opt for a secured student loan for a lower interest rate, but be careful—agreeing to a secured student loan will put your collateral at risk if you fail to meet payments.
Federal Student Loan Debt Is Backed by the Government
One of the most important ways in which student loan debt is different from other types of debt is that, unlike with a home mortgage or auto loan, you have the option of borrowing money from the federal government with your student loans. When you have federal student loans, the government provides all your repayment options. There are also more options for financial assistance with federal student loans over private student loans. The decisions the government makes about the growing collective student debt directly affect you if you have federal student loans, whereas private student loans are out of the government’s control.
One of the downsides of a federal student loan is that they’re notoriously difficult to settle. Because the government offers so many payment plans and student aid, the likelihood that they’ll settle is low. With the help of the professionals at Hope Credit, however, a federal student loan settlement that will get you out of debt is achievable.
It’s Difficult To File for Bankruptcy
Filing bankruptcy on student loans is especially difficult, as there are very few ways to totally discharge your student debt. You must prove to the court that your student loans are forcing you into undue financial hardship. Many times, changing your payment plan will help you avoid undue hardship and avoid bankruptcy—especially with federal student loans. However, in the case that any amount of student loan repayment will send you into undue hardship, many court cases look at your choice of career. If they believe you and your career choice are at fault for your financial hardship, they may deny your bankruptcy case.