Student loan debt is on the rise, and could become a problem similar to the recent mortgage crisis, according to a report recently issued by the National Association of Consumer Bankruptcy Attorneys (NACBA). Total student loan debt is approximately $1 trillion, which is about 14 times more than in 1997. Student loan debt has even surpassed credit card debt in the United States.
The problem stems from the increasingly high cost of obtaining an education and high interest rates charged by many private lenders. Many students are graduating with debts they cannot afford which cannot be discharged in bankruptcy. NACBA is calling for changes in the bankruptcy laws regarding discharge of student loans. Currently student loans are not dischargeable unless the debtor can show “undue hardship.” It is very difficult to prove undue hardship under current bankruptcy rules. Few cases in which student loans are listed result in discharge of these debts.
Legislation has been proposed which would make some of the changes suggested in NACBA’s report, but this legislation is a long ways from becoming law and it is likely that lobbies in support of lenders will oppose the legislation. Legislators should also put a limit on how much students can borrow. The easy availability of student loans is too much temptation for many students, who have little or no experience in managing money and unrealistic expectations of what they will earn after graduating from college.
Source: James Goodman, Rochester (N.Y.) Democrat and Chronicle