Home Money Opinion: The cycle of students loans has vicious repercussions

Opinion: The cycle of students loans has vicious repercussions

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In May 2014, student debt in the U.S. totaled more than $1.2 trillion, more than all credit card debt or all auto loans. According to The Institute for College Access and Success ,in 2013, 69 percent of graduating seniors entering both “public and private nonprofit colleges had student loans.” The average of those loans is $30,000 from both federal and private lenders. In 2014, about 40 million Americans had student loan debt.

Each year, over one million people in the U.S. file  for bankruptcy, and each year, these people find discharging student loans almost impossible. In contrast, getting rid of those thousands of dollars worth of credit card debt spent on clothes, jewelry, and cars is easy. According to the IRS, student loans are viewed in the same category as income tax debt, child support and debts from drunken driving lawsuits.

This unfair distinction appears to come from a lack of political voice. Young college graduates with minimal financial means are pitted against large financial institutions with billions of dollars in assets to influence lawmakers by donating to candidates and buying lobbyists. Students who use loans to better themselves are too often unable to receive debt relief from bankruptcy. And the amount of young adults filing bankruptcy is on the rise.

Filing bankruptcy happens primarily in one of two ways. The most common type, Chapter 7, is available to consumers, businesses and veterans. Chapter 7 is called “straight bankruptcy” and turns over debts to a trustee who pays creditors. The second most common type of bankruptcy is Chapter 13; this allows the individual to set up a payment plan to pay back their debt while working a full-time job.

Students entering the workforce are often starting with high credit card debt from lean college years and student loans. Few entry-level jobs pay enough to cover normal living expenses in addition to all the student loans that now must be repaid. For the many college graduates that have to choose between rent and food versus student loan repayment, bankruptcy would appear to be the best way out. However, financially-strapped graduates get a tough dose of reality; getting rid of student loans is very difficult, which is why only 0.1 percent of all people who file for bankruptcy even try to get rid of this debt. Those who file must prove that their debt is causing them undue financial burden.

This burden is proved through the Brunner Test. The three-part test must show that the individual has tried to repay the debt, that they are currently unable to maintain a minimum standard of living and that this financial position is unlikely to change in the future. So unless you are homeless or a drug-addict with no apparent future, bankruptcy will not eliminate your student loan debt.

This debt will affect the future of young college graduates in many indirect ways, including delaying marriage and families, purchasing first homes later than prior generations and delaying funding for retirement. In turn negatively impacting the U.S. economy as dollars that would have gone to consumer spending on new homes, furniture, appliances, lawn mowers, and other things, no longer do. The end result is lower economic growth and increasing wealth disparity. Given the size of the average student loan debt, this problem for individual graduates could persist for a decade or more. For the U.S. economy as a whole, this will be a persistent drag on the economy for generations.

So if the student debt crisis is so large and so damaging to both the individual and the U.S. economy on the whole, why is student debt not dischargeable in bankruptcy? The most plausible explanation is that lawmakers are continuing to be influenced by large and greedy financial service firms. They have the billions in assets, while poor college graduates have a limited political voice. The end result is that they are treated as morally-unforgiving debts on the same level as some of the worst people in America.

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