unable to pay student loansUnable to pay student loans? Know anyone in this situation? (Hint: you probably know quite a few). As some unfortunate borrowers have found out, there are real consequences to defaulting on student loans. After all, the creditor holding your debt is perhaps one of the most powerful that exists.

The Federal Government is a Unique (and Powerful) Creditor

When it comes to student loans, lenders can take steps that are otherwise unavailable to most creditors. Without having filed a lawsuit or obtained a judgment, the federal government can garnish wages, garnish social security or other federal benefits (for those who have guaranteed their children’s’ student loans), or even seize tax refunds. In addition, the government can also obtain a judgment and seek to liquidate your assets to pay off the debt. Besides this, there are a host of other ways defaulting on student loans can squeeze a borrower.

Will They Eventually Forget About Me?

Unlike your run-of-the-mill debts (e.g. credit cards, medical debt, etc.), there is no time limit on the collection of student loans.  In most states, there is a statute of limitations, after which certain debts cannot be collected. But this doesn’t apply to student loans. You may not have made payments for a few years, or even decades, but that doesn’t mean the government has forgotten you.  This debt is still lurking.

Bankruptcy – A Solution When Unable to Pay Student Loans?

Student loans are entitled to special treatment in bankruptcy. Many of the more typical debts could be partially or entirely discharged, but not student loans. In most situations, student loans will remain 100% intact after a bankruptcy filing. While wiping out other debts may make it easier to pay off the student loans (and this is actually one key reason for student borrowers to evaluate bankruptcy), make no mistake – the student loans will survive in almost every situation.

In case you were wondering who the most powerful creditor is, you need look no further. Not only are student loans the “stickiest” of all debts, but the creditor also has advanced collection tools to come after the borrower.  If student loan debts don’t scare you at least a little, then you probably do not realize the unique nature of these debts. For anyone unable to pay student loans, a game plan is needed. Perhaps the worst course of action is to simply ignore the student loans and hope they simply go away.

Additional Resources:

Want to better understand your existing student loans?  If you are looking to learn more, there is a valuable resource available to student loan borrowers (and family members, if they have guaranteed these debts): Student Loan Borrower’s Assistance (SLBA). This is a good place figure out some options, in particular if you have no other debts that could be addressed in a bankruptcy filing.

Considering taking on student loans? Check back to our site – we are creating a Two-Part Series that will help prospective students consider the financing of their education. Doing some legwork on the front end may prevent a real hardship in the future.


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