Student loan relief is not a part of consumer bankruptcy protection. Members of the National Association of Consumer Bankruptcy Attorneys (NACBA) believe student loan relief is essential and should be restored. Failure to address the growing problem of educational loan debt puts both borrowers and our struggling economy at even greater risk.
According to the NACBA, “[U]nmanageable student loan debt threatens to reach crisis proportions in the not distant future if Congress does not restore bankruptcy relief.”
The Student Loan Problem Parallels the Foreclosure Crisis
In the executive summary of the NACBA’s February 7, 2012, report on the student loan economic crisis:
Even in the best of economic times when jobs are plentiful, young people with considerable debt burdens end up delaying life-cycle events such as buying a car, purchasing a home, getting married and having children. Piling up student loans in middle age is even more troublesome. Aside from the simple truth that there is less time to earn back the money, it also means facing retirement years still deeply in debt. And, parents who take out loans for children or co-sign loans will find those loans more difficult to pay as they stop working and their incomes decline. [Emphasis added.]
This concern is echoed by bankruptcy attorneys from across the country who report that what they are seeing at the ground level feels too much like what they saw before the foreclosure crisis crashed onto the national scene: more and [more] consumers seeking their help with unmanageable student loan debt, and with no relief available.
Did You Know?
● Student loan debt now exceeds U.S. credit card debt.
● Student loan borrowing in 2010 was over $100 billion.
● The total outstanding educational loans in 2011 exceeded $1 trillion.
● Debt collectors of student loans have become increasingly aggressive since 2010.
● The average 2010 college graduate owes $25,250 in student loans – that’s a 5% increase from 2009.
● In the 2005-2006 academic year, student loans issued to parents for their children’s education increased 75%.
● 17% of parents of 2010 graduates borrowed money for their children, a significant increase from 1992-1993 when only 5.6% of parents borrowed educational funds for their children.
● Parent-borrowers average $34,000 in student loans for their children – that’s an average of $50,000 when amortized over a 10-year period.
● The default rate on government student loans is about 20%.
● Among those graduate-borrowers aged 35-49, the student loan debt increased by 47% – more than any other age group.
● Of 2005 graduates with loans, 25% had delinquent payments and 15% defaulted. One missed payment is a delinquency; a nine-month delinquency is a default.
The NACBA reports that “[s]tudents and workers seeking retraining are borrowing extraordinary amounts of money through federal and private loan programs to help cover the rising cost of college and training. In many cases, parents responsible for the student loans are in or near retirement years and facing repayment demands.” Is this the perfect financial storm, all over again?
Consumer Bankruptcy Attorneys at Ground Zero
Last January, 860 consumer bankruptcy attorneys responded to the NACBA’s survey relating to the frequency and character of potential clients with student loan debts:
● 81% of bankruptcy attorneys said that over the past three-four years they’ve seen a marked increase in bankruptcy clients with student loan debts. 40% of these attorneys have seen a “significant” increase in potential clients with student loans.
● 39% of bankruptcy attorneys have seen client cases with student loans increase as much as 25% to 50% in the past three-four years.
● 25% of bankruptcy attorneys have seen client cases with student loans increase 50% to 100%.
● 95% of bankruptcy attorneys reported that very few undue hardship discharges of student loans will be granted to these debtors. Consequently, there is little hope of any escape from educational loan debts.
● 82% of bankruptcy attorneys said that the inability to discharge student loans in bankruptcy prevents clients from getting a fresh start.
Briefly, since 1975 there have been many amendments to the U.S. Bankruptcy Code, all of which increased barriers to the discharge of educational loans. Believe it or not, there was a time when student loans were fully dischargeable in bankruptcy, just like any other unsecured debt. The first restriction on the discharge of educational loans arrived in 1976. That’s when the discharge of certain educational loans was prohibited when payments had not been made for at least five years (that mandatory payment period was extended to seven years in 1990). Finally, in 2005 most educational loans became completely non-dischargeable in any bankruptcy, unless the debtor fell into the very narrow undue hardship exception.
NACBA Call to Action
There has never been any substantial, credible evidence presented to support the idea that student loan debtors abused the bankruptcy system and, so, should be refused debt relief. The NACBA now calls on the U.S. Congress to reinstate the discharge of student loans in bankruptcy. To eliminate the non-dischargeability of private student loans, a provision sneaked into the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) without hearings or public debate. To restore the rights of debtors to discharge federal student loans in bankruptcy. And to re-impose a reasonable statute of limitations period on educational debts terminating a creditor’s right to sue, enforce a judgment, garnish wages, and so on. “[S]tatutes of limitation apply to nearly all federal criminal actions. The rare exceptions exist for those crimes that are punishable by death, including espionage and treason, and now, student loan defaults.”
Following the BAPCPA, sufficient protections against abuse are now plentiful under the Code, including the Means-Test criteria, higher filing fees, mandatory credit counseling and financial planning. We know that student-borrowers and parent-borrowers desperately need the financial safety net that only
bankruptcy can provide, and they need it now before the student loan debt bomb detonates.
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