Student Loan Crises and Bankruptcy

This is not an article that is designed to tell you that Bankruptcy can solve your student loan problems. Quite to the contrary, Bankruptcy cannot help much with student loans. It can eliminate all your other debt so that you can deal with your student loans when you have shed those other creditors, but beyond that it does not help much. Instead, this is an article that is going to explore the problem and present the solutions to the crises that others have suggested.

Many people are not aware there is a crisis. Many people relate their own experiences to the current situation, but they are not the same. For example, my generation largely went to college without student loans. Parents were able to fund at least the undergraduate degree so that their children did not come out of college in serious debt. Largely, that is impossible for families today. This is not because families are willing to set aside money. It is that largely because the cost of a college education has gone up with meteoric proportions. The cost of a college education increases 20% virtually every five years. As a country, we are approaching the law of diminishing returns. A person training to be a school teacher can never expect to be able to pay back $50,000 in loans. Even in the law profession, young attorneys are entering the market with $150,000 in student loan debt. The salaries of an attorney cannot justify that debt load.

A recent study by the Federal Reserve Bank of New York showed that people in 2003 left college owing about $10,649 on average. In just a few years, that number increased to $20,326. A few years later, that number is likely to be $40,000. There is not another single area of the economy where the costs exceed the education costs. Even the medical economy is not increasing as quickly. Why is this a crisis that needs to be addressed? According to Professor Daniel Austin, a bankruptcy professor at Northeastern University, we have a large part of our population who cannot get rid of these giant loan payments and therefore cannot participate in the rest of the economy. That will impact our housing market and will impact our economy generally. As he explained, they are off the economic grid and we are creating a permanent underclass.

There are many solutions to this problem. One of the obvious is to return the bankruptcy code provisions that allowed people to discharge student loan debt. Under the codes of the past, a person could discharge a student loan as long as they had made good faith efforts to pay for seven years. That kept someone from intentionally running up debt, but also allowed a person an escape valve if the education they received was not as valuable as they once hoped. At the same time, colleges and universities will have to create programs to assist college educated young people to get jobs. Further, the universities will have to find a way to contain costs. Right now, they have no incentive as long as federally backed student loans continue to fund the education machine.

If you are in a position that discharging all but your student loan debt will help you or if you have other debt issues that you need assistance with, come see us. Book an appointment with a skilled bankruptcy attorney. At Bailey & Galyen we would like to help you achieve your financial independence without all of the headache. Call 800-208-3104 or email today.


Bankruptcy Reform for Student Loans is Needed

Many years ago, student loan debt could be discharged in rare situations. A person had to make a good faith effort to pay the loans for a period of about seven years. If they had done that, then they could discharge the student loan debt just like they could credit card debt. Most people, just as today, made their payments. However, for those not lucky enough to find income to sustain the debt they had obtained it gave them an option to get out from under the debt. Bankruptcy is hard on the credit in return for the fact that a person gets to start over. The problem is that the law changed and the student loan debt became non-dischargeable except in extremely rare situations. Now, somebody with huge student loan debts may file bankruptcy to take care of other debt situations, but when they get out they do not get a fresh start. They get to have a fresh start for all debts except student loans. It seems that we have eliminated part of the reason that the bankruptcy laws exist. People now can come out of bankruptcy still financially devastated.