The Debt that Doesn’t Go Away
December 8th, 2009 at 10:56 am By Lauren Benditt
In last week’s article about student loans, I mentioned how difficult they are to get rid of. Primarily, they don’t just go away if an individual declares bankruptcy—he/she must demonstrate “undue hardship” such as a chronic illness or debilitating injury.
Later in the week, the US Supreme Court heard a case that has the potential to begin unraveling this rather tenacious knot of student debt. If the Supreme Court upholds the appeals court’s decision, loan holders may begin to have some flexibility in how they are able to discharge their student debt through bankruptcy.
According to today’s MinnPost article on student debt, the average Minnesota student graduates with $25,558, $3,358 higher than the national average. Moreover, 72 percent of students in Minnesota graduate with some debt. With students taking on increasing amounts in loans to fund their higher education, the outcome of this case could have a significant impact on the future of higher education finance in Minnesota.
The Court isn’t likely to rule on the case for several months, but the possibility of change is on the horizon.
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Many years ago, I worked for 2 different organizations that guaranteed student loans. I can tell you that the restriction preventing these loans being voided by bankruptcy was added for a good reason: graduating students were taking advantage of the system.
There were a number of students who went thru college on taxpayer-guaranteed student loans, graduated, and then quickly filed for bankruptcy to void those debts, leaving the taxpayers to cover the loan costs*. They were young people, without much established credit record, and too young to consider buying a home or other such major purchases, so bankruptcy didn’t matter so much to them.
But it was certainly an abuse of the student loan system; most of them made no serious effort to pay back their loans. So the Congressional Response excluded these loans from normal bankruptcy. While we could certainly consider different ways of covering college costs in our country, the difficulty of ‘getting rid’ of them is a response to a previous situation where they were all too easy to get rid of.
* This seemed to be especially common among professional college students, like lawyers, doctors, etc. — people who should have had an easier time earning enough to pay back their loan than your average liberal arts student.
The problem with college debt is in the amount of the loans now. My son has $160,000 in college debt but has 4 degrees to show for it. As a teacher he will pay $1200 a month for 25 years, which is about half his income. For the new student, a single 4 year degree may cost as much as that same $160,000. The questions is how will that student pay for it. When I went to college in the 70′s, you could pay for the cost of a good college with a part-time job. Our parents made sure that the costs of college was kept low. Our generation seems to only care about that 3 car garage & their kids are on their own. I see why they call us the “me” generation.
Good to know there are some responsibilities our society will not let people abandon. Lobbied US Congress in 2004 to increase Pell Grant. Lot of good that did, more free money and tuition keeps going up. There are some interesting ideas on other ways to fund college costs through paying a percentage of earned income over a number of years thus sharing the risk of an expensive degree with the creditor, so doctors would not be in such trouble if they did not get work right away.
College is very expensive. I am 28 and graduated with loans, spent a year with AmeriCorps and worked through school to help keep them down. Brother graduated this year with a bunch of them too. Neither of us work in our field of study, still I will be saving to help my kids get a degree (but they will work a year or two out of high school first). Don’t know what they call my generation but we help each other because we want to not because Uncle Sam taxes us.