Can bankruptcy solve student debt woes?
Allowing Americans to wipe out some student debt by filing for bankruptcy will do little to help most families.
This post comes from AnnaMaria Andriotis at partner site SmartMoney.
A federal agency is asking Congress to consider letting people wipe out some of their student debt by filing for bankruptcy protection. Consumer advocates, however, say the move will do little to help the vast majority of families struggling with college loans.
Richard Cordray, director of the Consumer Financial Protection Bureau, suggested the change to the bankruptcy rules last week in conjunction with a report criticizing private lenders. A 2005 law preventing borrowers from discharging private student loan debt in bankruptcy failed to prompt lenders to lower rates as promised, he said during a media call.
But even if Congress changes the private-loan policy, federal loans -- which account for about 85% of the more than $1 trillion in outstanding student debt -- would still not be dischargeable through bankruptcy, says Mark Kantrowitz, the publisher of FinAid.org, a student loan tracker. (Post continues below video.)
And the federal loans are not only much more common, they also default at nearly twice the rate. Approximately 9% of the total dollar amount of federal loans outstanding is in default compared with roughly 5% of private student loan dollars, according to data from the Department of Education and FinAid.org.
The recommendation comes at a time when student debt is rising rapidly. Since June 2005, debt has soared from $430 billion to more than $1 trillion, with many Americans across all age groups struggling to keep up with payments. With the aim of easing some of that burden, last month Congress voted in favor of extending the 3.4% rate for new federal subsidized Stafford loans for one more year. Rates on those loans, whose interest is paid by the government while borrowers are in school, were set to double if Congress didn't intervene. Experts say more aid may come soon.
Though private loans are often criticized for giving borrowers fewer options to stretch out payments in times of distress, the repercussions for those behind on federal loans are often worse. Private lenders and the federal government can both garnish borrowers' wages, but the government has a much greater reach. After borrowers default on federal student loans, the government can also keep their income tax refunds and withhold part of their Social Security checks during retirement.
Roughly 850,000 private loans that went into repayment from 1998 to 2009 are in default, according to the CFPB. During that same period, nearly 2.1 million federal student loan borrowers defaulted within two years of entering repayment, according to data from the Department of Education.
But allowing federal loans to be discharged through bankruptcy may be a nonstarter, officials say, as taxpayers would be saddled with the cost.
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Anyone care to disagree?
Or is this debt forgiveness and thereby handing out of free stuff only for the select few at the expense of everyone else?
Where do I get in line for the "free stuff others have to pay for", that sounds like a really good deal. Lets have people get used to the government giving them more and more "free" stuff without them ever having to pay or do anything for it.
What could possibly go wrong? I LOVE bread and circuses.
Absolutely! That is EXACTLY what people burdened with student loan debt need! Think about it-every other debt except child support can be wiped out in bankruptcy. Why not student loan debt? Lenders gave students large sums of money without a thought to how they would repay. Any other type of loan they want to know what your income is, your place of employment, credit score, etc. Student loans do not take that into consideration. The student loan crisis is much like the subprime lending disaster. Same situation-large sums of money were lended to people who could not afford to repay it. Student loan debt top $1 trillion dollars. This is America's next economic apocalypse. If student loans could be discharged in bankruptcy, the economy would see a dramatic resurgence of consumer spending.
It has become a viscious circle. There is a large bias in hiring against those who don't have college degrees. I've even seen postings for factory jobs wanting a 4-year degree. Part of the problem is employers don't want to, can't test, or fear being sued for testing knowledge so they rely on the piece of paper. The proliferation of degrees, and the capability to get them without mastering the material, much less retaining it, and in some cases not even seeing good material, leads to hiring less-than-competent people who have degrees. There are some very good for-profit universities but there are also degree (or debt) mills.
With the exception of specific engineering and science degrees for certain jobs, a degress basically should show someone is capable of learning and the hiring company then should take them and provide the additional training needed for a specific job. Companies have cut back on training.
Don't get me started on everyone and their brother now wanting PMP certification. There is more than the test. There usually is initial training and then there is the ongoing cost for CEUs to maintain certification that take significant time and often a fair amount of money. Employers need to realistically look at what is needed for an employee in general and for filling specific positions and stop asking for more and more credentials that drive up the cost to the worker and may not result in appropriately increased compensation. THe PMI and PMP certification have morphed from a professional association to advance knowledge and are becoming a cost-driver to maintain the status-quo.
The govement should go after the doctors,lawyers ,,etc who have the means to pay but don't. We give out give out a lot of money in aid ,Israel get the most,o they have this problem ? it time to cut these handouts to other counties .We need more people getting a better education,they will be our future so let cut them some slack .
Can't pay back my college loan, but I can afford to buy the latest I-phone with a data plan costing $100 a month? Don't forget the new $175 Nike Air Jordans. Or maybe that $600 I-pad. Please don't tell me I can't buy the latest video games!
More liberal why do I have to pay for what I want whine.
One thing I would agree to, and that would be allowing people some latitude to be able to write off on your income taxes the student loan interest. Anything else is just plain wrong.
I for one have paid my loans off years ago. It wasn't fun, or easy. But I did it.
One thing I can mention is there are other alternatives, many others like me have served in the military to earn extra income for schooling. Those funds are still out there. So if you want to make life easier, or a chance at making your future a little brighter, once again try working for it. Otherwise claiming bankruptcy is just another form of asking society "AKA the government" which is nothing more than you and me, to pay your way!
Pull yourself up by your boot straps, and BE RESPONSIBLE to carry your own weight.
Don't forget that you took the money, now it's time to pay back the debt you incurred. Remember that no one forced you to go to school. And no one ever forced you to take the money.
My oldest son is taking paying back his college debt seriously. My third son is going to community college now.
Those who were careless in running up high education debts want the taxpayers to bail them out.
That means the irresponsible want those who were responsible to bail them out.
I say no. If you don't want to pay the loan back, don't take the loan in the first place.
Perhaps the kids thinking about college need to hear a few good horror stories so they will learn to be responsible with how much college debt they take on.
The problem here is not the need to get rid of the student loan repayment, but to reduce the astronomical costs it takes to get a college education. I received my BA from a state school which I paid $18,000 for. But later in life had to obtain an MBA to advance my career and it cost me $25,000 which I am paying for the next 10 years. The job I was able to get does make up for the cost, but it is still more than I felt it should be.
We need to find a way to lower the costs of education, and its not with more scholarships. The more "free" educations a college gives out the more it costs the rest of the paying students. Scholarships should be for the exceptional students, not anyone who breathes and can't afford to pay. I worked full time throughout all my years in college and so can others.
I think many of you are missing the point here. Nobody should get a free ride BUT, as a guarantor, the government is already paying for the student loans. They pay the private lender when the loan defaults. In essence, the government is insuring a risk-free loan by the bank! The government then has to collect upon the defaulted loans. Sure it can garnish Social Security and seize tax refunds but really, if those are the means of payment, the defaulted borrower is likely also going to rely on federal and state aid for subsistence.
The biggest problem with student loans is the inexplicable rise in tuition, far outpacing inflation. Add to that high interest rates that lock-in above the rate of inflation, throw in the second worst recession in US history and you have a recipe for massive default and a generation crushed under the weight of debt that will have to rely on social services as they age since they cannot build retirement accounts. Finally, factor in their lost economic contribution. They cannot put money in retirement accounts, thereby boosing the stock market. They cannot purchase consumer goods, thereby employing workers (manufacturers, shippers, sellers, etc.).
Not sure what the solution is but it seems like most people complain about government wasting money anyway. Borrowers can pay the government (which will waste the money, some say) or they could contribute it toward the general economy.
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