Not all college graduates are as fortunate as this year’s Morehouse College seniors, surprised with the news delivered during billionaire investor Robert F. Smith’s commencement speech that he will be paying off their student loan debt. Smith’s generous gift is estimated at $40 million. That is one (lucky) graduating class of 396 students.
Just How Much Student Loan Debt Is Out There?
Nationwide, student borrowers owed an average of $33,310 in 2018, and there is roughly $1.5 trillion in federal student loans outstanding, according to the Federal Reserve Bank of New York. That outstanding student loan balance is projected to swell to $2 trillion by 2022, far surpassing credit card or auto debt. And more than a quarter of borrowers are in delinquency or default.
Why Aren’t Student Loans Dischargeable In Bankruptcy?
Since the 1970s, policymakers (concerned that students would rack up a bunch of loans and then try to discharge them after graduation) added a stipulation that student loan borrowers would have to wait at least five years after beginning repayment to file for bankruptcy. Prior to that legislation, you could discharge your student loans in bankruptcy. In 1990, the waiting period was increased to seven years.
Exceptions To The “No Bankruptcy” Rule
People with federal or private student loans have been able to walk away from their debt in bankruptcy, but only if they are able to prove their loans pose an “undue hardship”. But without Congress specifically defining and spelling out exactly what that term means, the uncertainty of it leads to inequity in the courts because what one judge feels is an undue hardship may be a simple hardship to another judge.
So What Has Changed?
Lawmakers have introduced a new bicameral bill in Congress that may help the nation’s 44 million student loan borrowers by making it easier for them to cancel their debt in bankruptcy. The measure, the Student Borrower Bankruptcy Relief Act of 2019 is legislation providing vulnerable student loan borrowers that are unable to repay their debt a means to reestablish their financial stability.
Many feel that bankruptcy protection should have never been taken away from student loans and the concerns that masses of student borrowers will seek to dump their debt have always been overblown. Prior to 1976 when the loans could be canceled in bankruptcy like other types of debt, less than 1% of it actually was. Granted, the cost of education has gone up roughly 161% in the last 30 years, so that increase may up the percentage of filers.
Filing bankruptcy shouldn’t be one’s immediate go-to, but for student borrowers who have no realistic path to pay back their crushing student loan debt, there should be an available option to help them get back on their feet. With our nation facing a student debt crisis, the new measure restores the meaningful availability of bankruptcy relief to student loan borrowers.
If you find yourself in a difficult position from insurmountable student loan debt or otherwise, having a trustworthy attorney is essential to finding your way back to financial wellbeing. An attorney can ensure that all your options are considered, and help reduce your stress.
This article should not be taken as legal advice. If you’re considering bankruptcy or any other legal debt relief option, you need to consult an attorney for guidance. If you’re in New Jersey and seeking legal assistance, we can help you.
Brenner Spiller & Archer is a New Jersey law firm that is dedicated to helping families find relief from the burden of debt and other financial woes. For more than 35 years, our bankruptcy lawyers have provided effective guidance on all debt relief matters to clients throughout Central and South Jersey.