Declaring bankruptcy doesn't ease student loans
Recent college graduates have entered one of the worst job markets in decades, with youth unemployment now standing at 14.5 percent.
To make matters worse, many grads find themselves trapped by expensive student loans. CBS News correspondent John Blackstone reports that filing for bankruptcy with those expensive loans offers no solution.
More than 500,000 students have defaulted on their student loans since 2008, but unlike in years past, bankruptcy is not an option for them.
Valisha Cooks always believed that a college degree would mean a better future, but at 30, faced with $80,000 in student loan debt (and a limping economy,) the future is hard to think about.
"I currently make now, almost exactly what I made before I had my degree. I really feel sometimes that going back to school ruined my life," Cooks says.
As many as two-thirds of all students graduate in debt. The average loan debt is $24,000, but as many as 7,000 students annually begin their adult lives more than $100,000 in debt.
"Some people say it's like graduating with a mortgage and you don't have a house," says Lauren Asher with The Institute for College Access and Success.
The real shock comes with the repayment terms. Like many students, Cooks signed up for two kinds of student loans, one federal and one private. At the time, she admits, she didn't understand the distinction.
Today, her $40,000 federal loan offers flexible options. Cooks pays $160 per month. However, the private loan of the same amount, $40,000, came with very expensive, non-negotiable terms costing her $800 dollars per month.
Add the interest, and Cooks will be paying $100,000, almost 3 times the original loan.
"Private student loans are much more like a credit card or sub-prime mortgage tend to have variable rates and they have no consumer protections," Asher says.
For Cooks, keeping up with payments during a complicated pregnancy became too much to handle.
"To get those harassing phone calls, it made me feel like a dead beat," Cooks says.
Cooks was advised to file for bankruptcy, which was a bad idea. Under the law, the student loans cannot be discharged, unlike a mortgage, credit card or even gambling debt.
That education debt stays with you for life.
Cooks testified before the House Judiciary Committee to help repeal the law, which prevents people from discharging private student loan debt.
"It was irresponsible on my part wholeheartedly for not reading the fine print," Cooks admits.
For many like Cooks, that fine print will cast a big shadow for a long time.
