Surge in student debt prompts Congress to reconsider bankruptcy laws
A new law is under consideration that would allow student loans to be eligible for bankruptcy relief.
February 16, 2013
Surge in student debt prompts Congress to reconsider bankruptcy lawsArticle provided by John Christopher Robinson
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Go to college, get a good job. Unfortunately, this old maxim may no longer hold true. In these tough economic times getting a college degree does not always lead to a job, let alone a good one.
The national unemployment rate continues to hover around 8 percent and college graduates are struggling to find employment after graduation. Unemployment rates for college graduates over 25 were estimated at 4.1 percent while those with only a high school degree were at a rate of 8.7 percent, according to a recent Census Bureau statistic. Although these statistics appear to show college graduates are more likely to find jobs than those who do not pursue higher education, it is important to keep in mind that those who earn these degrees are more likely than ever to need to manage large student loan debts.
Student loan debt is a growing problem and can lead to a personal financial crisis. Generally, people facing a financial crisis are able to find a fresh start by filing for bankruptcy. Unfortunately, people generally cannot find relief from the burden of student loans since these loans are often exempted from bankruptcy protections.
This may soon change. Experts with the Consumer Financial Protection Bureau are voicing concerns that the student loan crisis may mirror the housing crisis. As a result, these experts are calling for action, and Congress is listening.
Congress considering bills to change bankruptcy laws
A group of lawmakers is considering expanding bankruptcy protections to include private student loans. This would allow those filing for bankruptcy to be relieved of their student loan obligations.
Those in favor of changing the law argue that allowing these loans to qualify for bankruptcy protections will encourage private lenders to work with borrowers and offer more repayment options. This could include income based repayment and deferment. Those who oppose the change argue that discharging the debt will only hurt taxpayers.
One supporter, Senator Dick Durbin of Illinois, recently introduced a bill that would remove the exemption and allow private student loans to be discharged in bankruptcy. He argues the current law treats those struggling with student debt the same way it treats those attempting to avoid child support payments and evading taxes. He states this treatment is too "harsh" and is pushing for passage of the new law.
Regardless of whether Senator Durbin's bill is passed, two things are clear: bankruptcy law is complex and constantly changing. As a result, if you or a loved one is struggling financially, it is wise to seek the counsel of an experienced bankruptcy attorney to discuss your situation and help you determine if bankruptcy is the right path for you.