STUDENT LOAN DISCHARGEABILITY CHANGES NOT COMING SOON
There has been some hope that change from the Federal Government was coming soon to the growing issue of student loan debt. Both Public and Private student loans are currently nearly impossible to discharge in bankruptcy, due to a bankruptcy reform package pushed through by Republicans in 2005. Essentially, a consumer must be disabled to the point of never being able to rise above the poverty line standard of living in order to attempt to discharge any portion of a student loan debt, whether publicly or privately backed.
Now the Obama administration has weighed in on the issue. And the results are not what many borrowers were hoping for from this administration. In this article:
the administration argues in Court filings that the current standards for discharging student loans should not be relaxed. This case involved a parent taking out loans on behalf of his three children, but the standard for any student loan discharge would be covered by the filing. Essentially, the government argues that to allow a discharge in bankruptcy would endanger the entire federal student loan program due to the expected loss of repayments.
Student loan debt has been growing tremendously over the past few years. The total outstanding student loan balance is $1.08 trillion, and a whopping 11.5% of it is 90+ days delinquent or in default. That’s the highest delinquency rate among all forms of debt and the only one that’s been on the rise consistently since 2003. (see http://www.forbes.com/sites/halahtouryalai/2014/02/21/1-trillion-student-loan-problem-keeps-getting-worse/ for chart and other statistics). The delinquency rate on student loans is higher than credit cards, mortgages and auto loans which have all seen a decline in late payments.
Putting in some form of ability to discharge private student loans would be a good start to addressing the growing student loan problem that continues to plague today’s struggling consumers. Often, private student loans have been incurred at predatory type of institutions which provide minimal benefit to consumers or which have very low graduation rates compared to the level of lending. More than 70 percent of Americans matriculate at a four-year college — the seventh-highest rate among 23 developed nations. But less than two-thirds end up graduating. Including community colleges, the graduation rate drops to 53 percent. (http://www.nytimes.com/2013/06/26/business/economy/dropping-out-of-college-and-paying-the-price.html?pagewanted=all&_r=0). Allowing truly needy consumers the ability to discharge some private loans would allow those consumers the ability to enter the credit markets again in order to purchase homes, cars and other necessary items in order to contribute to the economy, without the burden of crushing student loan debt. The rate of home ownership is 36% less among those currently repaying student debt, according to research from ProgressNow.
At Mickler & Mickler, we attend Court on a regular basis. We have the experience and knowledge to ensure that you receive the correct advice when confronted with difficult financial decisions related to filing bankruptcy. Contact us at 904.725.0822 or bkmickler@planlaw.com.
Bryan K. Mickler
