Signing up for repayment plans they cannot afford is a primary reason some student loan holders later turn to bankruptcy for relief. Some disappointed college grads are discovering that, even after struggling for years to pay off high student loan debts, they are not passing “go” but are going into bankruptcy. Over $67 billion in student debt is now in default.

Unscrupulous collection agents pressure student loan holders into committing to very high monthly payment “rehabilitation” plans. The illegal practice is seen when boiler-room telemarketers pressure students to sign for the rehab plans without telling them of other, more affordable options. The sellers do this to earn high performance-based commissions and pricey perks from their collection agency and they have no thought at all about actually helping the debtor.

This problem is under scrutiny by the Federal Trade Commission as the practice of non-disclosure about the low cost options violates terms of the Fair Debt Collection Practices Act. Approximately two-thirds of graduating seniors today owe an average of $25,000 in student loans they accumulated during the course of their studies. When they graduate but are unable to find high paying jobs, they fall behind or default on the loan agreements. Since student loans cannot usually be discharged with bankruptcy, they sign onto the easy-to-obtain high payment programs to satisfy the loan repayments.

Today, however, bankruptcy may indeed be a good answer for some cash and loan strapped graduates under a new program expanded in 2009 by Congress. This ties any payments directly to income levels on a sliding scale basis. A bankruptcy would eliminate many debts and this government program might then be useful because if their income is below $30,000, they would not even have to make payments immediately, and if income remains low for 25 years, the entire loan could be cancelled.

Bankruptcy is a serious alternative to remaining deep in debt and could be a positive answer for certain problems, including student loan debt. Consult with a professional bankruptcy lawyer to see if this is the right path for your financial well-being.

Source: Bloomberg, “Obama Relies on Debt Collectors Profiting From Student Loan Woe,” John Hechinger, March 25, 2012