Stop the Student Loan Debt Bomb with A Bankruptcy Amendment

Stop the Student Loan Debt Bomb with A Bankruptcy Amendment

All Americans have felt the worst economic downturn in American history, since the Great Depression.  The affects and repercussions are still being diagnosed, assessed and measured.  The damage induced by the Wall Street housing bubble is far more widespread than a weak housing market, negative equity, or high unemployment rates.

With a slow economy many college students are remaining in school while others struggling to find jobs are returning to college or university life in the hopes of getting an edge in the job market.  Reports abound showing that students are borrowing extraordinary amounts putting a huge burden on the backs of young people looking for jobs and trying to start their careers.  Students are borrowing twice the amount compared to a decade ago.  The total student loan debt has doubled in the past five years at a time when consumers have reduced what’s owed on home loans and credit cards.  Student loan debt now exceeds credit card debt.

Unfortunately, employment rates for new college graduates have fallen sharply as have the starting salaries for those lucky few that find jobs—to the tune of 30%.  The result is an alarming debt-bomb that is set to wreak its effect on the US economy unless something is done to disarm it.

With more student  debt than ever before, fewer jobs and lower starting salaries the US economy will suffer.  The situation is creating a generation of wage slavery where buying a car, buying a home, getting married and having children is delayed or prohibitive.   It’s not just the younger generation that is affected, however.  Borrowing has grown 47% by those ages 35-49 and parents too are being affected as they co-sign on student loans as they head into retirement and reduced income.

“Even in the best of economic times when jobs are plentiful, young people with considerable debt burdens end up delaying life-cycle events such as buying a car, purchasing a home, getting married and having children.  Pilling up student loans in middle age is even more troublesome.  And parents who take out loans for children or co-sign loans will find those loans more difficult to pay as they stop working and their incomes decline.  This concern is echoed by bankruptcy attorneys from across the country who report that what they are seeing at the ground level feels to much like what they saw before the foreclosure crisis crashed onto the national scene: more consumers seeking their help with unmanageable student loan debt, and with no relief available,”  says Jon Rao, attorney, National Consumer Law Center and Vice President, Nation Association of Consumer Bankruptcy Attorneys.

Prior to the 2005 Bankruptcy amendments private student loans could be discharged and prior to 1977 both federal and private student loans could be discharged.  Not so under the current bankruptcy rules.  Temporary student loan debt relief can be found when filing for a chapter 13 bankruptcy, which controls student loan payments during the plan period.  Once the plan is completed, however, the student loan debt payments—and potential garnishments—resume until repaid in full.   This of course presumes the debtor will qualify for Utah chapter 13 bankruptcy, which requires regular income in sufficient amount to cover the debtor’s living expenses and plan payment.

With student loan defaults rising, and many not qualifying for a Utah chapter 13 bankruptcy, these debtors will be doomed to having their wages garnished indefinitely.   To help stabilize the economy, an amendment to the current bankruptcy code regarding student loan debt is needed.


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