Student loans are basically non-collectible, almost everyone knows that. Even today there are some very specific situations where you can get your student loan debt paid off, but this is the narrow exception that usually requires money to fight and fight. We will discuss the current discharge status in a future post.
The landscape around student loans and bankruptcy hasn’t always been this desolate. Not so long ago these loans could have been discharged. When they were discharged, the cost of an education was much lower, and the total student loan debt was a fraction of what it is now. With student loan debt currently a $1,200,000,000 (One Trillion Two Hundred Billion) dollar problem keeping people from buying homes or getting involved in the wider economy, they can be discharged again with a little help.
A short history.
Student loans didn’t really appear in America until 1958 under the National Defense Education Act. 1. These loans were offered as a way to encourage students to earn degrees in math and science so we could compete with the Soviet Union.
2. In 1965, the Guaranteed Student Loan or Stafford Loan program was launched under the Johnson Administration. Over time, additional loan programs have emerged. With the decrease in the support received by the universities over time, the loan needs of the students increased even more. Take the State of Ohio, for example. In 1990 they received 25% of their budget from the state, by 2012 this rate had fallen to 7%. In the absence of government money, universities and colleges increased their tuition fees to compensate for the reduction in government money.
Increased Cost of Education.
The cost of higher education, adjusted for inflation over time, looks like this: The average cost of tuition room and boarding at a public institution in 1980 was $7,587.00 in 2014, and increased from $18,943.00 in 2015 to $18,943.00 in 2014. In 35 years when inflation is taken into account, the cost of higher education has increased 2.5 times. Compare that to inflation-adjusted housing costs, which rose only 19% from 1980, when the bubble and the housing crisis abated, to 2015, which remained almost unchanged.
3. Or compare with non-increasing fees over the same time period, excluding the top 25%. Looking at affordability in terms of minimum wage, it’s clear that loans are increasingly necessary for anyone who wants to go to university or college. in 1981, a minimum-wage person could work full time during the summer and earn enough to cover their annual college expenses and leave a small amount they could put together from grants, loans, or jobs during the school year.
4. In 2005, a minimum wage student would have to work all year and devote all of that money to tuition costs enough to attend a 1-year public college or university. 5. Now think about it, there are about 40 million people with over $1.2 trillion in student loan debt. According to Studentaid.gov, seven million of these borrowers are in default, roughly 18%. Default is defined as 270 days overdue on your student loan payments. In default, loan balances increase by 25% and are sent to collection. collection agents,
Student Debt Prison Building.
Before 1976, student loans were in a state of bankruptcy without any restrictions. Of course, if you look at the statistics for that period, there wasn’t much student debt to talk about. When the US Bankruptcy Act came into effect in 1978, the ability to discharge student loans was curtailed. Back then, you had to repay your loans for 5 years or prove that such a payment would be an unnecessary hassle before you could close your loans. The rationale for narrowing the eviction was that it would undermine the student loan system as student borrowers flocked to bankruptcy to pay off their debts. However, the facts did not support this attack. By 1977, only 3% of student loans had ended in bankruptcy.
6. Still, the walls continued to be closed to student debtors. until 1984, only private student loans issued by a nonprofit higher education institution were excluded from eviction.
7. Later, with the enactment of the Bankruptcy Amendments and the Federal Judiciary Act of 1984, private loans from all non-profit lenders were exempted from discharge. In 1990, the payback period was increased to 7 years before an eviction was obtained.
8. In 1991, the Emergency Unemployment Compensation Act of 1991 allowed the federal government to seize up to 10% of the disposable wages of defaulting borrowers.
9. In 1993, the Higher Education Amendments of 1992 added contingent income reimbursement requiring 20% of discretionary income to be paid into Direct Loans.
10. The remaining balance after 25 years of repayment is forgiven. The Debt Collection Improvement Act of 1996, It allowed Social Security benefit payments to be offset to pay back defaulted federal education loans.
11. In 1998, the Higher Education Amendments of 1998 repealed the provision that allowed education loans to be repaid after 7 years.
12. In 2001, the U.S. Department of Education began offsetting up to 15% of social security disability and retirement benefits to repay defaulted federal education loans. In 2005, the “change of law” as we call it in the field of Bankruptcy further narrowed the exemption to include most private student loans. Private student loans have not been reduced in cost because they are given bankruptcy recovery protection.
13. If the rationale for excluding student loans from eviction is that the cost of students getting loans will increase,
After the slow march to fill our students with unshakable debts, the government has created several ways to deal with government-backed student loans outside of bankruptcy. In 2007, the University Cost Reduction and Access Act added income-based repayment allowing for a smaller repayment than income-related repayment, 15% of discretionary income, and debt forgiveness after 25 years.
14. In 2010, the Health and Education Reconciliation Act of 2010 established a new version of income-based repayment that reduced the monthly payment to 10% of discretionary income with debt forgiveness after 20 years.
15. This newly developed income-based repayment schedule is only for borrowers who did not have a loan before 2008. Also, those with defaulted loans, they will not be eligible for income-based repayment unless they rehabilitate these loans first. If you want to see if your loans are eligible for income-based repayment or income-based repayment, please visit Student aid dot gov. Unfortunately, none of these programs do anything to deal with private loans, a problem that currently grows at around 200,000,000,000,000 (Two Hundred Billion) or about 16% of total student loan debt.
What can we do?
The cost of education is rising steadily, the need for higher education to make a living is growing, and our graduates’ ability to repay these loans is diminishing.
Why does the cost of education outpace inflation so much?
Why are state and local governments reducing their funding for college students? These are also questions that need to be addressed. My focus is on the lack of a real evacuation option and how that puts pressure on the rest of the economy. This is a problem. On September 8, 2015, Michigan Congressman Dan Kildee introduced a bill in Congress aimed at reducing the burden on students and their families resulting from rising education costs and the financial stress of student loans. 16. Proposed legislation would eliminate the eviction exception listed in 11 USC § 523(a)(8).
All the best,
Steven Palmer, Atty.