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Student Loans Soar After Bankruptcy


Nearly 20% of bankruptcies are filed by young men and women that are under the age of 29 years old! Many of these individuals were promised the world when they started attending college in their late teenage years. By attending higher education, they assume that they will find an amazing job with a high salary that will take care of their student loans in just a couple of years. The reality of the situation, however, is that many of them will not find a job in their field of interest, and they will have to return to the low-paying jobs that they had when they were working through college.


If these graduates are returning to their part-time jobs and they have loans of more than $20,000, they most likely won’t be able to pay for all of the bills that they have: rent, car payments, gas, food, and student loans? Forget about it. A $25,000 a year (at maximum) salary will not cover all of these expenses. This is when students become discouraged and feel that filing for bankruptcy is their only options.

Related article: What’s Killing Your Credit Score? And How Can You Fix It?

For those that file Chapter 13, some of their debts are wiped away (at the expense of their credit score of course), but not all of them disappear. In fact, if these individuals have student loans, not only do they not go away, but the individual is not allowed to pay down the balance of those student loans for three, sometimes five years while the interest continues to build on them.

So what’s the result? Those $20,000 student loans turn into $25,000 student loans or more. And then, what if you still can’t afford to pay the loans? Then you start getting penalized for not paying!

I knew one man that had exactly this situation. He had student loans that he still owed on, but simply didn’t have the money to pay them down. After 7 years, the balance of his loans increased from $20k to $40k. If he waited another 7 years, the balance of this debt would double once again. That means that instead of $40,000, he would then owe $80,000!! Another 7 years and it would total $160,000. His debt grew out of control and turned into a permanent straight-jacket. He was never able to get rid of his debts and walked around in constant sorrow.

Think Twice About Your Student Loans

I hope that this story makes you think twice about the student loans that you are piling up. And, if you know of students that are entering college, please advise them to keep their loans as low as possible. By keeping your loans low, your cash flow will stay high and you will be much less likely to find yourself in a bankruptcy situation.

Did you have student loan debt? Did you ever feel short on cash while trying to make the payments?



My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.


  1. That’s the sad truth but I do think with proper financial education, those students will have a brighter future ahead of them.

    • For the most part, I agree with you Mark. But, there are always those kids that are pushed into college even though they don’t have a clue what to do with their lives. Most likely, they are left with debt and no degree. They would have been better off never going to college in the first place.

  2. Unfortunately, the bottom line is that (oftentimes, not always) student loans do one of two things — staggering debt leads to a college graduate (or dropout) living in near poverty due to the overwhelming costs of their loans or it discourages potential students from even attempting to obtain a college education because the risk of smothering debt isn’t worth the possibility of getting a “good” job.

    The whole situation seriously needs fixing. I’m not saying that student loans should automatically be included in bankruptcies (because it could lead to substantial abuse)…but there has to be some way that getting a college education doesn’t destroy so many lives.

    If I told you how much debt I had due to student loans, you might pass out. It’s not in 6 figures, but it’s so close, it’s negligible. And I didn’t finish post-grad. If I had, I would owe well into 6 figures. A house, anyway. *sigh*

    • Do you feel like all of your debt was worth it Kristin? I just think kids today aren’t thinking that student loans are a bad thing – they just assume it’s a step in the direction toward being successful. When I was in college, there were so many kids that were using their working money to go on spring break, rather than paying down their student loans. And, if they didn’t have the cash for the vacation, they used their credit card! Kids just need more education and structure about loans in general.

  3. I think before going to college, students should have to sit in a meeting and be told the honest truth: a college degree will open doors for you, but it won’t guarantee you a certain income or lifestyle. There are plenty of jobs that don’t require a college degree that pay very well. I think we push kids to college because “without a college you won’t find a job”. Not everyone is meant for college and that is OK.

    • I’m with you Jon! I certainly wouldn’t want to discourage students from going to college (if they had the desire to go), but I bet a simple meeting would cause them to work a little harder to take on as little debt as possible.

  4. Student loans can be brutal if you don’t have a plan to pay them back. Luckily we’re aggressively destroying them.

    • I love hearing that Lance! Get rid of those student loans and you’ll be so happy when they’re gone. I know I was!

  5. So your friend had a $20k student loan at 10.3%? Wow, that sure seems high. You are certainly correct that student loans in bankruptcy will only cost you more. I wish that student loans were dismissible under bankruptcy. Then the lenders wouldn’t be giving them out like candy, students wouldn’t be able to afford the current high fees for college, and the price of a college degree would come down.

    • Yes. He was in his late 40’s. I’m not sure how he got the money for his schooling. Perhaps it started out as a personal loan in the late 80’s when inflation was soaring. Great point by the way. Lenders know that students can’t get out of the loans, so that would just make them all the more frivolous with handing them out! It’s too bad really, especially when the ones that are getting hurt are young adults that don’t really understand how life works yet.

  6. I don’t know enough about the student loan dynamics to have an educated opinion about how to improve them.

    But I have always been amazed that student loans aren’t dismissable via bankruptcy. As a result, whenever anyone I know is starting college, I always make sure to talk to them about two things: watch out for the “free” credit cards banks will be throwing at you as soon as you walk on campus, and watch out for student loans because the only way to get rid of them is to pay every cent plus interest.

    I’ve always wondered how many people go the public service forgiveness route where you can get rid of your student loans by working for the government for 10 years. These days, it makes me wonder what the impact of the repeated government shutdowns has on people in that plan.

  7. I guess kids of today should be properly guided and educated as well on how to use their student debts and as much as possible try to have a lesser one by being more frugal as a student. They could take jobs to lessen their debts and sacrifice some of their good times and fun yet while they are still going to college.

  8. I now live in Australia and the way it works here is you get an interest free(or low interest) loan from the government and once you begin work your payments get automatically deducted as a percentage of your earnings and they are before tax so it’s beneficial in that it reduces your taxable income.
    Also as I understand, if you are not working you are not incurring interest although I’m not 100% sure whether this is accurate.

    • Hmm, that is interesting. I wonder what happens if you get a job that really doesn’t make you enough money to support the loan and life in general? Because around here, there are many college grads that are underemployed and don’t earn the salary they were promised when they first started school.

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