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Could Changing Bankruptcy Laws for Student Loans Improve the Economy?

Posted By Allmand Law Firm, PLLC || 11-Sep-2013

Congress Urged by Obama Administration to Include Student Loan Debt in Bankruptcy

A recent report completed by the Center for American Progress looks at how the economy could benefit from student loan discharge. While getting student loan debt eliminated in bankruptcy can be done only under strict circumstances, many hope lawmakers reconsider making changes to a bankruptcy law that dates back to the mid-1970s that made getting rid of such debt literally impossible.

Many find it somewhat silly that gambling and credit card debt get better treatment in bankruptcy than student loan debt. Currently, 1 in 8 student borrowers are in default and unfortunately, this figure has tripled from 10 years ago. The amount of outstanding student loan debt is staggering with a total amount over a trillion dollars.

The concept of discharging student loan debt may actually help the economy depending on how you look at it. Researchers looked at employment rates of colleges and figure that schools with a higher employment rate may give students a better chance at paying off what they owe. If a student attends a college with a lower employment rate after graduation, they should be eligible for discharge of their student loan, especially if repayment terms seem unrealistic.

Basically, loans that students can sustain would not be eligible for discharge. Private lenders may not have as much protection as they do now and more of these types of loans would be eligible for elimination. A special "Qualified Student Loan" system could be developed that would benefit both educational institutions and students.

On the other hand, there are a few problems we still need to deal with. The cost of going to college continues to rise and has risen by roughly 27 percent in the last 5 years alone. Congress hasn't made things any easier by cutting off tens of billions of dollars in student loan funding.

Reference: http://thinkprogress.org/economy/2013/08/20/2498231/how-changing-bankruptcy-laws-for-student-loans-could-revitalize-the-economy/

Categories: Student Loans
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