The 2005 Bankruptcy Reform Act made it impossible to discharge both federal and private student loan debts through Chapter 7 and Chapter 13 Bankruptcy.
Currently to discharge student loans the debtor must show “undue hardship” which is difficult to prove. How do you prove undue hardship? First an adversary hearing must be filed against the loan lender and the court will use what is termed the “Brunner test” to determine, through a preponderance of evidence, whether the following exists:
- Can the debtor maintain a minimal standard of living, based on their current income if they are forced to repay the student loan?
- Will the debtor’s financial situation and hardships continue throughout a large portion of the student loan repayment period?
- Has the debtor made a good faith effort to repay the student loans?
Is college worth the cost?
The cost of college has dramatically increased while the opportunities for college graduates has continued to decline. With the average student exiting college with an astounding $24,000 in student loan debt, and considering that they may also have substantial credit card debt, this debt burden is likely to cripple new graduates, who may or may not find a job. Many graduates may also have to forgo some career opportunities for a job that offers the most lucrative initial payout.
With the inability to discharge student loans after college if you are facing a financial crisis and the abysmal job market, some students and their families are beginning to wonder whether taking out large student loans is a financially sound decision.
Add to this the question of whether or not a college education is currently over priced for the benefit or “education” you get for the money. Experts have begun to question if education may be the new “bubble” following the stock and housing bubble.
Why is the cost of college rising?
In Peter Schiff’s new book, “The Real Crash” he outlines what is actually at work in college pricing. Schiff argues that the quality of the degree is going down and supply is high, which should lead to lower costs, but instead with the families willingness to pay for college at any price and the government’s willingness to offer student loan subsidies (which has not made college more affordable but has instead increased the amount the student it willing and able to pay) has dramatically increased the price.
To support his position Schiff provides evidence that the cost of student tuition was “remarkably stable” prior to the government involvement in loans. Schiff’s argument is that although the free market has enabled many products to decrease in price, the fact the government has intervened in the system has actually driven prices up.
Questions before going to college and taking out student loans
Another valid point, one which was highlighted by a recent book “Academically Adrift: Limited Learning on College Campuses” is that there is evidence from the author’s research that many students who attend college fail to “make no gains in their critical reasoning and thinking skills, or writing ability, after two years of college. Even worse, more than one out of three college seniors were no better at writing and thinking than they were when they first arrived at college.” How would you feel borrowing $100,000 and receive no educational gains and no new employment opportunities? I am betting that many students will start to feel it is not worth the cost to take out the student loans.
Latest posts by Beth (see all)
- Chapter 7 bankruptcy how to avoid filing a second time? - April 24, 2017
- Chapter 7 bankruptcy how do they determine if I can file? - April 19, 2017
- Receiving Supplemental Security Income can I file for bankruptcy? - April 12, 2017