Government owes a favor to student loan debt problems
Student loan debt is the largest consumer debt burden in the nation, which, according to the Consumer Financial Protection Bureau, hit the $1 trillion mark a few months ago. The number trounces the nation’s credit card debt of $693 billion and total auto loan balances of $730 billion, according to a report by the FRBNY Consumer Credit Panel in March 2012.
Yet there’s an important difference between student loan debt and all other forms of consumer debt. Upon filing for bankruptcy, all of your credit card debt and auto loans can be discharged, while your student loan debt cannot be unless they are determined to provide an undue burden on you or your dependents. This policy unfairly puts lower income households at a disadvantage and is threatening to be the cause of the next major financial meltdown.
Recently, there has been a push from Democrats in the Senate to change this. The Fairness for Struggling Students Act of 2013, which is sponsored by Senators Dick Durbin (D-Ill.), Sheldon Whitehouse (D-R.I.) and Jack Reed (D-Ill.) would reverse a change made in 2005 that made discharging private student loans all but impossible. Federal loans haven’t been eligible for discharge through bankruptcy since 1978, though this bill would not change that.
The bill is getting support from some unusual places. Martha Holler, a spokeswoman for Sallie Mae, a major private student loan lender, told the Wall Street Journal that the company is in favor of “reform that would allow federal and private student loans to be dischargeable in bankruptcy for those who have made a good faith effort to repay their student loans over a five-to seven-year period and still experience financial difficulty.”
This isn’t an excuse to simply take out a bunch of student loans and use them to travel the world only to declare bankruptcy later, though. A good faith effort, which is determined by a judge, includes a close look at your expenditures and what attempts you’ve made to earn a higher income. Even under this bill you would have to be legitimately struggling for at least five years to get relief.
Many Wildcats graduating in May will join other college students from around the nation who average $27,253 of student debt, a 58 percent increase since 2005 according to a report from the Fair Isaac Corporation (FICO). Forbes magazine reports that 15 percent of these loans were more than 90 days past due between 2010 and 2012. The Project on Student Debt estimated in November that about 33 percent of students graduated college with private student loan debt in 2011.
About one third of UA students will be entering a sluggish economy with high post-graduate unemployment with private student loans that frequently have double digit interest rates. They will also see poor, or no, deferment options held by companies that have no incentive to work out a reasonable payment plan as discharging them is next to impossible. This leads to new college graduates taking years to begin putting money back into the economy by purchasing homes and other goods beyond the bare necessities, and that isn’t helping an already slow economic growth rate. This doesn’t doesn’t make America sound much like the fabled land of opportunity — it sounds more like the financial hell usually reserved for people trying to evade child support or criminal fines.
Denying post-grads any chance of having private student loans discharged isn’t doing any favors for the economy. Since the government has been unable to combat rising tuition costs, they should at least help us out with student loans after a good faith effort has been made.
— Nathaniel Drake is a sophomore studying political science and communications. He can be reached at firstname.lastname@example.org or Twitter via @WildcatOpinions.