This month the New York Times posted an interesting article by Ron Lieber discussing the student loan situation that I wrote about in yesterday’s blog. Mr. Lieber points out that individuals who overextend themselves economically by purchasing luxury items are permitted to eliminate their debt through bankruptcy; yet if you borrow the money for an education and end up in financial trouble it is almost impossible to erase the education debt in a bankruptcy court-even if, as I pointed out yesterday, it’s a private loan from for-profit lenders. The two bills that are now in the Senate and House of Representatives that I mentioned yesterday would relax the rules for private student loans.
To clarify the issue at hand you must understand that there are two main types of student loans. There are the federal loans, like Stafford and Perkins loans, which would not be included under the proposed legislation. Since the federal government (and in the end the taxpayers) stand behind these loans it seems reasonable that they are not included in the new bills.
The second kind of debt, private loans underwritten by profit-making banks that do not have any government guarantees and come with fewer options for repayment are the ones that are being considered for discharge in a bankruptcy case under the new bills. This seems only fair, especially since undergraduates can borrow a lot more than they can with federal loans, increasing the chances of them having trouble with repayment.
Ron Lieber stated that “. . . the volume of private loans, which are most popular among students attending profit-making schools, has grown rapidly in the last two decades as students have tried to close the gap between the rising price of tuition and what they can afford.” During the school year of 2007-2008 approximately one third of all graduates with bachelor’s degrees had used a private loan at some time in their education, according to College Board research.
Of course, there is some debate about whether relaxing the bankruptcy laws in relation to student loans is a wise move on the part of our legislators. But, as Lieber suggests, the cost of the student loans might decrease. “And young adults just getting started in life might be less likely to face a nasty choice between decades of oppressive debt payments and visiting a bankruptcy judge before starting an entry-level job.”
If you have any questions, please feel free to contact me. Kevin D. Heupel, Colorado Bankruptcy lawyer, 303-955-7570, COBankruptcyHelpEmail, free-consultation form. I will answer them with no obligation. I am here to help.
