Americans owe more than $1 trillion in student loan debt! What does this mean?
April 3, 2012 Leave a comment
According to an article in the Wall Street Journal today student loan debt has exceeded $1 trillion. According to the article all this student loan debt could lead to consumers postponing buying homes which could severely impact any possible economic recovery. This new debt estimate comes form the new agency called the “Consumer Financial Protection Bureau” (CFPB) which was recently created ostensibly to protect consumers. The $1 trillion estimate of total student loan debt in this country exceeds the old estimate done by the Federal Reserve Bank of New York by 16%.
The reason for the increase in the estimate for total student loan debt is because this time the new agency used a survey of private lenders to come up with their figures. In the past estimates have been apparently based upon consumer credit reports. I don’t know why this estimate is so much higher because credit reports usually always list student loans on them. But it is possible on the other hand that the private lenders could be remiss in listing these on consumer credit reports because of the bankruptcy laws. See here for my update on student loan debt.
After 2005 all student loans became non-dischargeable in bankruptcy whether they were backed by the government or not. A strictly private loan to a private institution therefore survived bankruptcy. It is possible that because these lenders now that there loans are safe from discharge that they get lazy. They can always pop up and try to collect a student loan (even a private one) without the fear of the debtor filing or threatening to file a bankruptcy. Therefore it is possible that a survey of these lenders themselves will yield a more accurate assessment of the true amount of student loans owed out there. See here for my blog about private student loans.
Officials at the CFPB say this increase could be attributed to the fact that state budgets are being cut, more students are going to school instead of working because of high unemployment, and because tuition is increasing. Also they say that interest is increasing on these loans and more and more students (or former students) are behind on their loans.
Then they remind us that first time home buyers are a big part of the housing market and these debtors are increasingly postponing the buying of their first house. This can have a tremendous effect on any potential recovery and the economy as a whole. The people interviewed in the article are increasingly nervous as they are saddled with ever increasing debt and they wonder if they should continue their education. The CFPB reiterates how important education is for getting the skills necessary to get a good job in the end.
I agree with the idea of the importance of education and I too am concerned about all of this student loan debt being incurred by people who probably cannot pay it back. As a bankruptcy attorney I see this every day and I advise bankruptcy for these people. But student loan debt is different from credit card or other types of debt. Since 2005 it has all been non-dischargeable in bankruptcy even if the government has no involvement in the loan.
I therefore believe that Congress should pass a law that allows the discharging of student loan debt in bankruptcy after a certain number of years. It could be 5, 10, or 20 years but the debt should not last forever or until a person dies.
I am a bankruptcy lawyer practicing bankruptcy law in San Diego. For further information please visit my website ar www.freshstartsandiego.com or www.farquharlaw.com. Or call my office for a free consultation at (619) 702-5015. Call now for free credit report and analysis!
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