Student loans are essentially non-releasable, almost everyone knows it. There are very specific circumstances in which, even today, your student loan debt can be discharged, but this is a narrow exception that often requires a fight and a # 39; money. We will discuss the current state of discharge capacity in a future article.
The landscape of student loans and bankruptcy has not always been so distressing. It was not so long ago, these loans were releasable. At the time when they were releasable, the cost of studying was much lower and the total debt for student loans was only a fraction of what it is now. With student loans currently at $ 1.2 trillion (one trillion two hundred billion dollars), they prevent people from buying housing or taking part in the economy as a whole.
A brief story.
Student loans really came to America only in 1958 under the National Defense Education Act. 1. These loans were offered to encourage students to pursue studies in mathematics and science in order to keep us in competition with the Soviet Union. 2. In 1965, the Guaranteed Student Loan or Stafford loan program was launched under the Johnson Administration. Over time, new loan programs have emerged. The need for student loans has become more important as grants received by universities have declined over time. Take Ohio State, for example. In 1990, they received 25% of their state budget and, in 2012, this percentage had fallen to 7%. In the absence of public funds, universities and colleges have increased tuition fees to cover the reduction of public funds.
The rising cost of education.
The cost of higher education adjusted for inflation is as follows: in 1980, the average cost of tuition in a public institution was $ 7,587.00 in 2014 dollars and in 2015, 18 $ 943.00 in 2014 dollars. The cost of a higher education in 35 years, taking into account inflation, has been multiplied by 2.5. Compare this to inflation-adjusted housing costs, which remained virtually unchanged, rising only 19% from 1980 to 2015, when the bubble and the housing crisis disappeared. 3. Or do you compare to wages that, with the exception of the richest 25%, have not increased over the same period. With regard to affordability in terms of the minimum wage, it is clear that loans are increasingly necessary for anyone wishing to attend a university or college. In 1981, a minimum wage worker was able to work full time in the summer and almost enough to pay annual tuition fees, leaving a small amount they could accumulate in the form of grants, loans or during the school year. 4. In 2005, a student earning the minimum wage should work all year long and spend all this money on the cost of his studies to offer a year in a college or public university. 5. Now, think about this, there are about 40 million people with student loan debt exceeding the $ 1.2 trillion mark. According to studentaid.gov, seven million of these borrowers are in default, about 18%. The default is defined as being 270 days late on your student loan payments. In case of default, the loan balance increases by 25% and is sent to recoveries. Collection agencies collect a commission on the recovered debt and are often owned by the entity even at the origin of the loan, namely Sallie Mae.
The construction of the prison for indebted students.
Prior to 1976, student loans were releasable without any constraints. Of course, if you look at the statistics of that time, there was not a lot of student debt per se. When the US Bankruptcy Code was promulgated in 1978, the ability to release student loans was reduced. At the time, for your loans to be released, you had to be repaid for 5 years or prove that such a repayment would be an undue hardship. The rationale for reducing the landfill was that it would hurt the student loan system because student debtors would rush into bankruptcy to pay off their debt. The facts, however, did not support this attack. In 1977, only 0.3% of student loans had been released as a result of bankruptcy. 6. Nevertheless, the walls of the student debtors continued to close. Until 1984, only loans to private students contracted by a non-profit higher education institution were exempt from release. 7. Next, with the adoption of Bankruptcy Amendments and the 1984 Federal Judicial Affairs Act, private borrowing by all non-profit lenders was exempted from the discharge. In 1990, the repayment period before a discharge could be received was increased to 7 years. 8. In 1991, the 1991 Emergency Unemployment Benefits Act authorized the federal government to seize up to 10% of the available wages of defaulting borrowers. 9. In 1993, the 1992 amendments to higher education added the income-based reimbursement, requiring the payment of 20% of the discretionary income for direct loans. 10. After 25 years of repayment, the remaining balance has been forgiven. In 1996, the Better Debt Collection Act of 1996 offset the payment of social security benefits to repay outstanding federal loans. 11. In 1998, the 1998 amendments to higher education canceled the provision allowing student loans to be released after seven years of repayment. 12. In 2001, the US Department of Education began offsetting up to 15% of social security disability and retirement benefits to pay off loans. federal studies overdue. In 2005, "the law changed", as we call it in the field of bankruptcy, further reduced the exception to the discharge, so as to include most private student loans. Since private student loans have been protected from being released by bankruptcy, the cost of these loans has not been reduced. 13. If the reason for excluding student loans from release is that the cost of obtaining loans would increase significantly, this would seem to be wasting this argument.
As a result of the slow progress towards unwavering debt on our students, the government has created two ways to deal with government-guaranteed student loans outside of bankruptcy. In 2007, the 2007 College Access and Cost Reduction Act added the income-based refund, which allows a refund less than the income-based repayment, 15% of the discretionary income and l & # 39; Debt cancellation after 25 years. 14. In 2010, the Health and Education Conciliation Act 2010 created a new version of the income-based reimbursement, reducing the monthly payment to 10% of discretionary income with cancellation of the debt after 20 years. 15. This new Enhanced Income Reimbursement Plan only applies to borrowers who have not borrowed by 2008. In addition, borrowers in default will not be eligible for income-based repayment unless they to rehabilitate these loans. If you are interested in whether your loans are eligible for an income-based refund or income-based refund, please refer to the dot gov Student Aid. Unfortunately, none of these programs solve the problem of private lending, a growing problem that currently stands at around $ 200 billion (two hundred billion), or about 16 percent of the total student loan debt.
What can we do?
The cost of education is steadily increasing, the need for higher education to earn a living wage is steadily growing and the ability of our graduates to repay these loans is decreasing. Why does the cost of education exceed so much inflation? Why do state and local governments reduce the funds they previously spent on students? These are questions that must also be addressed. I focus on the unavailability of a real discharge option and how it adds to the rest of the economy. This is a problem. On September 8, 2015, Michigan Congressman Dan Kildee introduced a bill to reduce the burden placed on students and their families by the rising costs of education and the financial stress of student loans. . 16. The proposed legislation would remove the exception to the landfill listed in 11 USC § 523 (a) (8). If you would like to have your say on this issue, call your congressman today and let them know where you are on HR 3451
Steven Palmer, Esq.
License in WA and OH
2. PL 85-864; 72 Stat. 1580
3. Schiller Home Price Index, corrected for inflation
4. Student Debt: Increasingly Large, Center for Research on Economics and Policy, Heather Boushey (Sept. 2005).
5. Boushey (September 2005)
6. END THE EXCEPTIONALIST STUDENT LOAN: THE POST OF THE PRICING BASED ON RISK AND DISCHARGEABLE, 126 Harv. L. Rev. 587
7. Financial aid dot Org, Questions, Bankruptcy
8. Crime Prevention Act 1990, PL 101-674, 11/29/1990.
9. PL 102-164, 11/15/1991
10. PL 102-325, 7/23/1992
11. Improving Debt Collection Act, 1996, PL 104-134, 4/26/1996.
12. PL 105-244, 10/7/1998
13. 126 Harv. L. Rev. 587
14. PL 110-84, 27/09/2007
15. PL 111-152, 3/30/2010