The financial burdens of student loans rest heavily, of course, on the most recent generation of college graduates. Some have accumulated three or more times as much debt as their annual salaries. This significantly handicaps their ability to purchase homes and cars, start a family or go to graduate school.
In fact, the National Association of Consumer Bankruptcy Attorneys issued a report in 2012 that said tuition debt is a very widespread and deep problem that affects the overall economy. Bankruptcy attorneys interviewed for the report stated that the unmanageable student loan debt is similar to what they saw preceding the home foreclosure crisis in the mid-2000s. The report recommends ways to defuse this ticking time bomb by several means:
- Allow student loans to be discharged in bankruptcy – The point of bankruptcy is to enable a fresh start, allowing people to rebuild their lives after completing a payoff plan (Chapter 13 of the bankruptcy code) or a liquidation (Chapter 7). Since 2005, student loans have not been dischargeable in bankruptcy.
- Establish a reasonable statute of limitations – There is no time limitation for student loan debt to be repaid. Therefore, a retired person with decades-old student loan debt might lose Social Security benefits for not paying off the loan.
- Limit private collection agencies – Collection fees for a tuition loan default are often unreasonable and need to be reined in.
Alas, these are recommendations and not yet law. Speak with a bankruptcy attorney to find out if you qualify for a hardship exemption that can either make payments more manageable or dispense with the balance due altogether.