In 1978, the federal government began altering the student loan bankruptcy laws. Back then, the Bankruptcy Reform Act was signed into law by President Carter. This was in response to a handful of doctors and lawyers who attempted to fraudulently file for bankruptcy after graduation. Instead of allowing then current laws to apply, every student loan holder now found themselves stripped of bankruptcy protection for a minimum of five years after graduation from their school. This established a precedent that put banks and government agencies ahead of students and their families which continues today.
Reform to the current student loan bankruptcy laws has to be addressed due to the size and scope of the debt amounts current student loan holders have. As you may know, according to the Consumer Financial Protection Bureau, student loan debt has grown to over $1.2 trillion. This means that student loan debt is the largest amount of unsecured debt in the U.S., exceeding even credit card debt by almost 30 percent. This also means that nearly half of all American households have some form of student debt looming over their financial future. Per a report released this summer from the Center for American Progress, that is 45 percent of families across the country.
Rising Student Loan Debt & Loss of Consumer Protection
While there is no data collected for 2013 yet, the average debt amount for these families has almost doubled in the last decade. In 2003, the average balance for a 25 year old recent graduate was about $10,649. Not great, but that student and his co-signer (hello Mom and Dad) could see the light at the end of the tunnel. Last year, that average debt amount was $20,326. If you want to run the exact number, that is an increase of 91 percent. That light at the end of the tunnel just went out for a lot of families struggling to keep a roof over their heads and food on the table. In the meantime, the U.S Government is posting record profits off student loan borrowers.
It would be very easy to start reforming the bankruptcy laws and take that burden off of these families, but instead of thinking in the interest of students, lobbyists won and borrowers lost more rights . Back in 2005, a number of amendments to the bankruptcy code were passed that stripped some very basic consumer protections from student loan holders:
- Right to Refinance
- Statue of Limitation on Debt Collections
- Fair Debt Collection Practices
- Truth In Lending
By removing these rights, debt collection agencies can go after honest citizens any use any scare tactics they deem fit to try and collect on the loan. Many of the same lenders own the collection agencies as well and can profit more off the student once the loan is in default.
Despite the loss of these basic protections, many people still have no choice but to try and go through bankruptcy court. As we have pointed out previously at Student Debt Relief, it took Michael Hedlund, a law school graduate, ten years to get just a part of his $85,000 in student loans discharged through the current bankruptcy court system. He was fortunate enough to have a law firm take his case for no fees or pro bono. Most graduates in the system now simply give up due to the cost and just try to do their best to pay the student loan debt despite their situation, or seek student loan forgiveness when available.
Recommended Changes To Student Loan Standards
- Access to income-based repayment for all borrowers
- Deferment provisions for all loans
- Reasonable interest rates and fees
Any loans that do not meet these standards would be considered a higher risk loan and could be discharged through standard bankruptcy proceedings.
Daniel Austin, a bankruptcy law professor at Northwestern University, has called recent graduates “the indentured generation”. Due to the economic recession and the very slow recovery, Professor Austin correctly points out that these highly educated young people, who are now working part-time at Starbucks and the local grocery store, are no longer participants in the economy.
The unemployment rate for them (20 – 24 year olds) is 12.6 percent compared to the national rate of 7.4 percent. In normal economic times, their average is lower than the national rate and helps to drive the recovery. This generation that should be buying cars and starting businesses just does not have the same opportunity as ten years ago. If these people that we depend on for the future of our economy are not given the same protections they have for other unsecured debt, then our future is unsecured as well.
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Student Debt Relief Loan Refinancing Advertiser Disclosure
College Ave: College Ave Student Loans products are made available through either Firstrust Bank, member FDIC or M.Y. Safra Bank, FSB, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.
College Ave Refi Education loans are not currently available to residents of Maine.
1 – The 0.25% auto-pay interest rate reduction applies as long as the borrower or cosigner, if applicable, enrolls in auto-pay and authorizes our loan servicer to automatically deduct your monthly payments from a valid bank account via Automated Clearing House (“ACH”). The rate reduction applies for as long as the monthly payment amount is successfully deducted from the designated bank account and is suspended during periods of forbearance and certain deferments. Variable rates may increase after consummation.
2 – $5,000 is the minimum requirement to refinance. The maximum loan amount is $300,000 for those with medical, dental, pharmacy or veterinary doctorate degrees, and $150,000 for all other undergraduate or graduate degrees. Information advertised valid as of 04/26/2019. Variable interest rates may increase after consummation.
3 – This informational repayment example uses typical loan terms for a refi borrower with a Full Principal & Interest Repayment and a 10-year repayment term, has a $40,000 loan and a 5.5% Annual Percentage Rate (“APR”): 120 monthly payments of $434.11 while in the repayment period, for a total amount of payments of $52,092.61. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary.
ELFI: Subject to credit approval. Terms and conditions apply. To qualify for refinancing or student loans consolidation through ELFI, you must have at least $15,000 in student loan debt and must have earned a bachelor’s degree or higher from an approved post-secondary institution.
LendKey: Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
CommonBond: Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate.
Splash Financial: Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval.com
Earnest: To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest’s fixed-rate loan rates range from 3.89% APR (with autopay) to 7.89% APR (with autopay). Variable rate loan rates range from 2.50% APR (with autopay) to 7.27% APR (with autopay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms of 10 years or less. For loan terms of 10 to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 0.26% and 5.03% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of April 23, 2019 and are subject to change based on market conditions and borrower eligibility.
Auto Pay Discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 04/23/19. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice.
Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 303 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, e-mail us at email@example.com, or call 888-601-2801 for more information on our student loan refinance product.