The Wall Street Journal is reporting talks are under way to allow private student loans to be discharged in a bankruptcy. Currently all student loans are very difficult to discharge in bankruptcy and only a very few actually qualify for a discharge. When a person files for bankruptcy, they should be given a clean slate and a fresh start. With the rising costs of college tuition, it is common for people to have over $100,000.00 in student loan debt. Some of my client’s have even had more than $300,000.00. But as the law currently stands, bankruptcy would not relieve the debtor of any of that obligation. Bankruptcy is supposed to give you a fresh start, but how can anyone start over when there is no way to get rid of tens of thousands if not hundreds of thousands dollars worth of debt? Although some people file for bankruptcy, it is rare for people to file to simply get away from their debt merely because they can. The overwhelming majority of people file for bankruptcy because they are in extreme financial hardship. The law should not punish everyone merely because a select few abuse it. Allowing for private loans to be discharged in bankruptcy would provide debtors with relief in bankruptcy they desperately need. The Wall Street Journal reports:
The growth of student debt is stirring debate about whether the government should step in to ease the burden by rewriting the bankruptcy laws—again.
In 2005, Congress prohibited student debt from being discharged through bankruptcy, except in rare cases, because of concerns that many young graduates—who often have no major assets such as a house or a car—would be tempted to walk away from loan obligations.
As the House of Representatives debates how to pay for preventing interest on college loans from doubling, FinAid.org publisher Mark Kantrowitz checks in on Mean Street to examine the showdown between the White House and Congress and the potential impact of higher interest rates on students.
SmartMoney’s AnnaMaria Andriotis looks at the battle over student loans and why banks have taken steps to make sure that a proposal in Congress to forgive some loans won’t work. Plus, can private student loans undercut federal rates?
Some lawmakers now want to temper that position, pointing to concerns that a significant number of Americans could be buried under education loans for decades. Their efforts, however, would apply only to private loans—a fraction of the market.
In the past decade student debt has surged as tuition and enrollment climbed. At the same time, college graduates’ earnings have declined. The average debt load of all new graduates rose 24%, adjusted for inflation, from 2000 through 2010, to $16,932, says the Progressive Policy Institute, a left-leaning think tank in Washington. Over the same period, the average earnings of full-time workers ages 25 to 34 with no more than a bachelor’s degree fell by 15% to $53,539.
Terri Reynolds-Rogers, a 57-year-old health-program manager from Palmer, Alaska, declared bankruptcy in 2007, but still has $152,000 in student debt. She said she dropped out of medical school in 1999 to care for her two children after her husband died of brain cancer.
The government needs to reconsider the bankruptcy laws regarding student loans. You can read the rest of the article here. If you have student loans and are considering bankruptcy, please contact a Burbank Bankruptcy Lawyer. Please post your comments.