Student loans are an increasingly large burden on the citizens of the United States. The overall college debt comes in at over $1 trillion dollars and doesn’t show any signs of slowing down as tuition prices continue to increase. In the past, the laws pertaining to student loans in a bankruptcy filing have not been helpful to those applying. Recent reports, however, have stated that there should be a larger level of protection, due to this common form of debt that many times gets out of hand, while the employment rates of many graduates presents them with an inability to pay them back.
In The Past
Before 1984, the only student loans that could be discharged during bankruptcy were those that were from “nonprofit higher education institutions.” For the vast majority of college students, this doesn’t cover their particular debt. Several changes to laws have gone into effect since then, although not many have been designed to truly aid in students who are facing thousands of dollars worth of debt.
One of the most recent changes, in 2005, classified student loans on the same level as government loans, despite the fact that student loans have incredibly different terms and are not protected as many consumer loans are. Nearly all forms of public debts are able to be discharged in a bankruptcy, but student loans, even through private lenders, remain set apart and posing a burden on the borrower. Even when going through a bankruptcy filing, interest will accrue and borrowers find themselves facing more debt than ever once the bankruptcy period is over.
The Current State Of Affairs
Recent concern about the economy and the ability of borrowers to pay back oftentimes unfair loans has raised a new level of interest in changing the wording and classification of loans in terms of bankruptcy filings. The Center For American Progress is currently leading the charge to reform these laws. They are calling for “Qualified Student Loans” to be protected during bankruptcy, but increase the ability of borrowers to pay them back by offering reasonable repayment terms for those who are enrolled in a program that consistently results in employment.
There is also a movement in Congress to reform the laws. The effort aims to revert the bankruptcy laws pertaining to student loans back to their pre-2005 terms, as a start. The congressman cites the 18% interest rates that apply to many student loans, in sharp contrast to many other loans that they are currently classified alongside. The current state of affairs involves proving “undue hardship” as the only way to have a student loan discharged, which has proven to be a tedious, complex, and near impossible process. The effort of Congress is to remove much of that complexity and make student loans closer to other private debts that are easily discharged by a bankruptcy hearing.
Student Loan Protection
Student loan protection in bankruptcy is a contentious issue and one that is incredibly complex. There are many opinions on what should be done about the issue, but the truth of the matter is that there is an ever growing number of people who are facing very serious debts because of student loans.