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Higher education not necessarily a financial safety net

Those who turn to higher education as a way to ensure financial success may be on their way to bankruptcy. According to the Department of Education, some students are even defaulting on their loans before they graduate.

Since the economic crisis in 2008, bankruptcies have been on the rise because of job loss, stricter loan conditions and lower limits, as well as other economic factors. Education, it seems, is no longer a guarantee for financial success.

The Institute for Financial Literacy says that the number of college graduates seeking personal bankruptcy protection is on the rise, while those who never entered college or did not make it to graduation are filing for bankruptcy less frequently.

In 2006, 11.2 percent of those filing for bankruptcy had a college degree. That number rose to 13.6 by 2010. Similar numbers are seen for those with associate and graduate degrees.

The director of IFL said that, thanks to the recession, the idea that advanced education is a financial guarantee is going to change. In only one fiscal year, from 2009 to 2010, student loan defaults increased from 7 to 8.8 percent, according to the Department of Education.

The largest increase in student loan defaults was seen in for-profit colleges and universities. Defaults within the first two years of payment increased from 11.6 to 15 percent. At public colleges and universities, the default rate increased from 6 to 7.2 percent, while in not-for-profit private institutions, the increase was only to 4.6 from 4 percent.

An Institute for Higher Education Policy study found that the problem goes past those who default on loans. They found that for every person who defaults on their loan, two others are behind on payments. The deputy education secretary says that there is a strong correlation between students defaulting on loans and the rate of joblessness.

While some people in Washington, D.C., and the surrounding areas may be wary of the stigma that can come with bankruptcy, several consumers have found that is the best way to get their finances back on track. Those who are considering filing for personal bankruptcy may find it helpful to speak with an experienced bankruptcy attorney.

Source: GantDaily.com, "Study: Growing number of college grads filing for bankruptcy protection," Vittorio Hernandez, Sept. 13, 2011

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