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#385542 - 02/13/12 06:12 AM Student Loan Crisis
Still Offline
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MaleSurvivor

Registered: 02/16/07
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Loc: FEMA Region 1
Found on www.bankruptcy-attorney-massachusetts.com

Americans now owe more on student loans than on credit cards.

The amount of student borrowing crossed the $100 billion threshold for the first time in 2010 and total outstanding loans and exceeded $1 trillion for the first time last year. The reason: Students and workers seeking retraining are borrowing extraordinary amounts of money through federal and private loan programs to help cover the rising cost of college and training. In many cases, parents responsible for the student loans are in or near retirement years and facing repayment demands.

How big is the danger to the U.S. economy? “Evidence is mounting that student loans could be the next trouble spot for lenders,” said Dr. Andrew Jennings, chief analytics officer at FICO and head of FICO Labs.
Consider the facts:

• Individually, college seniors who graduated with student loans in 2010 owed an average of $25,250, up five percent from the previous year.

• Borrowing has grown far more quickly for those in the 35-49 age group, with school debt burden increasing by a staggering 47 percent.

• Students are not alone in borrowing at record rates, so too are their parents. Loans to parents for the college education of children have jumped 75 percent since the 2005-2006 academic year.

• Parents have an average of $34,000 in student loans and that figure rises to about $50,000 over a standard 10-year repayment period. An estimated 17 percent of parents whose children graduated in 2010 took out loans, up from 5.6 percent in 1992-1993.

• Of the Class of 2005 borrowers who began repayments the year they graduated, one analysis found 25 percent became delinquent at some point and 15 percent defaulted. The Chronicle of Education puts the default rate on government loans at 20 percent.

With rising debt comes increased risk, both to borrowers and to the economy in general. Even in the best of economic times when jobs are plentiful, young people with considerable debt burdens end up delaying life-cycle events such as buying a car, purchasing a home, getting married and having children. Piling up student loans in middle age is even more troublesome. Aside from the simple truth that there is less time to earn back the money, it also means facing retirement years still deeply in debt. And, parents who take out loans for children or co-sign loans will find those loans more difficult to pay as they stop working and their incomes decline.

This concern is echoed by bankruptcy attorneys from across the country who report that what they are seeing at the ground level feels too much like what they saw before the foreclosure crisis crashed onto the national scene: more and consumers seeking their help with unmanageable student loan debt, and with no relief available.
The push behind a college education has always been that typically college graduates earn significantly more than those with high school degrees. However, this is not always the case. Some may find their chosen professions are not as lucrative as they thought. Some may find few jobs are available or may lose their job in the current economic environment. Yet others will confront unexpected life traumas such as disability, divorce or death of a family member. Whatever the circumstance, student loan borrowers are allowed very little margin for error and easily can find themselves with unmanageable student loan debt. These borrowers face a lifetime of debt with little or no chance for escape.

Missing just one student loan payment puts a borrower in delinquent status. After nine months of delinquency a borrower is in default. As younger college students, middle aged borrowers and parents all have taken on bigger student loan burdens, the level of defaults has risen. Although the Department of Education’s official default rate for 2009 was 8.8 percent, the figure reflects only those debtors who began repayment in fiscal year 2009 and failed to meet the obligation by September 30, 2010, not all the people who defaulted over time.

While any default hurts a borrower’s credit, the consequences of a default on a student loan is particularly onerous. Once a default occurs, the full amount of the loan is due immediately. The government also cuts off any future federal financial aid and strips the borrower’s eligibility for loan forgiveness.

For those with federal student loans, the government has collection powers far beyond those of most creditors. The government can garnish a borrower’s wages without a judgment, seize a tax refund (including an earned income tax credit) or portions of federal benefits such as Social Security, and deny eligibility for new education grants or loans. The government can sue the borrower to place liens on bank accounts and property, and can tack on collection fees of 30 percent of the amount due. There is no discharge in bankruptcy for federal loans except in extremely limited circumstances that require a borrower to file a lawsuit that few bankruptcy debtors can afford, especially because student loan servicers aggressively litigate such cases. Unlike any other type of debt, there is no statute of limitations. The government can pursue borrowers to the grave. And, for those with professional licenses, failure to pay student loan debt can result in the loss of the state-issued license.

As stated, student loans are among the few types of debts that generally are not dischargeable in bankruptcy. However, this was not always the case. Prior to 1976, all student loan debt was dischargeable in bankruptcy, just as if it were any other type of unsecured debt. That year, Congress added an exception to the bankruptcy discharge by prohibiting the discharge of education loans made by the government or a non-profit college or university, unless those loans had been in repayment for five years. That exception was continued in the 1978 Bankruptcy Act, but debtors who completed a chapter 13 plan, paying all they could afford over three to five years, were not subject to the five year waiting period. Since 1978, there have been three significant legislative changes in the treatment of student loans in bankruptcy.
First, in 1990, the five year repayment period was extended to seven years and the differential treatment of chapter 13 was eliminated. In 1998, the temporal ground (the seven years) for discharge was eliminated. And finally, in 2005, Congress included most private student loans in the nondischargeability category as part of a comprehensive rewrite of the bankruptcy code.

The only exception to the nondischargeability of student loan debt is if the debtor can persuade the bankruptcy court that repayment of the loan would result in “undue hardship.” There is no statutory definition of “undue hardship.” This is a court-defined term, usually satisfied only if the debtor can meet the three-pronged test set forth in Brunner v. New York State Higher EducationServices Corp., 11 under which the debtor must demonstrate: (1) she cannot maintain a minimal standard of living for herself or her dependents if forced to repay the loan, (2) circumstances exist indicating this state of affairs is likely to persist for a significant portion of the repayment period, and (3) the debtor has made a good faith effort to repay the loan. In certain courts, a somewhat more flexible ”totality of the circumstances” test has been applied.

The extension of the preferential treatment for student loans in bankruptcy to private student loans came during the credit industry’s feeding frenzy – the 2005 comprehensive rewrite of the bankruptcy code. Amid the chaos of credit card lenders, car financiers and rent-to-own oufits all advancing their self interests in a long and complex series of amendments, an unidentified lawmaker slipped in a provision making private student loans non-dischargable. There were no hearings or public discussion of such a fundamental change in policy on private student loans during the several years the bankruptcy bill was under discussion. Now, private student lenders, despite their lack of protections afforded by government lenders, enjoy the same protection from default.

The Nation Association of Consumer Bankruptcy Attorneys (NACBA) agrees with the comments submitted by the National Consumer Law Center to the Consumer Financial Protection Bureau that “bankruptcy is not and should not be the entire safety net, but it is the most organized, recognized, and effective system available offering relief to those who most need it. It is never an easy decision for a consumer to choose bankruptcy. As a result, NACBA has called on Congress to act immediately to eliminate the nondischargeability of private student loans. There simply is no reason to allow private student loans to be treated differently from other types of unsecured credit. In fact, exempting these loans from discharge is likely to cause even more harm for borrowers since there are no interest rate limit or limits on fees charged for private student loans. Furthermore, there are limited repayment options for those borrowers facing financial hardship. Legislation pending in both the House (H.R. 2028, the “Private Student Loan Bankruptcy Fairness Act,”) and Senate (S. 1102, the “Fairness for Struggling Students Act,”) will restore bankruptcy relief for private student loans.

SOURCE: The Student Loan “Debt Bomb”: America’s Next Mortgage-Style Economic Crisis? A Report Prepared For The National Association of Consumer Bankruptcy Attorneys (NACBA) February 7, 2012. http://nacba.org/Portals/0/Documents/Student%20Loan%20Debt/020712%20NACBA%20student%20loan%20debt%20report.pdf


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#385971 - 02/16/12 02:14 AM Re: Student Loan Crisis [Re: Still]
mike13 Offline
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Registered: 02/02/11
Posts: 419
Loc: California USA
Wise words indeed as some of us prepare to send our kids off to college. Mike


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#386183 - 02/17/12 02:22 PM Re: Student Loan Crisis [Re: mike13]
atari_kid86 Offline
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MaleSurvivor

Registered: 02/23/10
Posts: 135
Loc: Michigan
Much of the reason that students end up with huge loans, but no job is that they major in art, music, theater, or any other kind of non-job producing curriculum. I understand that the economy sucks, and that student loan debt truly is a problem for many people. But there's a good portion of people who did not have much foresight and got themselves expensive, useless degrees. For those individuals, I feel less sympathy.


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#387742 - 02/29/12 06:56 AM Re: Student Loan Crisis [Re: Still]
Forexpreneur Offline


Registered: 02/08/12
Posts: 141
Loc: Uranus (hell no not yours. lol...
Great article. The fact is that our modern money is backed by debt. Not even the Swiss Franc is backed by gold any more.

Investing and economics is my domain, and my educated opinion is that we are far from being out of the woods of The Great Recession.

There is no way for us to avoid a global financial melt down because debt is leveraged upon debt ..... and it's global. No offense to Greece but they are a little spec in the financial ocean yet there is so much fear about their ultimate default. Very few people really question why. wink


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#387759 - 02/29/12 10:56 AM Re: Student Loan Crisis [Re: Forexpreneur]
Fissy Tsickens Offline
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Registered: 09/23/08
Posts: 466
Loc: Bassett, Virginia
This doesn't surprise me in the least. My daughter will be graduating from a private university in Virginia this May. Sticker price ranged from $38,000 freshman year to $41,000 this year. She had some scholarships and grants, thank God, but she (and my wife and I) will be paying off student loans for years and years to come. I'm very concerned about her prospects for finding a job, but thankfully we've got some connections and she is more likely than some to secure adequate employment.

Alex, I agree with you. There is absolutely NO SIGN of any improvements in the economy here in southwestern Virginia. Abandoned buildings and jobless folks are everywhere. It's pitiful.

Peace,

John

_________________________
Wish that I could cry
Fall upon my knees
Find a way to lie
About a home I’ll never see

It may sound absurd...but don’t be naive
Even heroes have the right to bleed
I may be disturbed...but won’t you concede
Even heroes have the right to dream
It’s not easy to be me

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#387869 - 03/01/12 12:32 AM Re: Student Loan Crisis [Re: Fissy Tsickens]
pufferfish Offline
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MaleSurvivor

Registered: 02/26/08
Posts: 6875
Loc: USA
I think this is one of the ways our society has lost its way.

We supposedly want everybody to go to college. Then they have trouble getting jobs when they graduate. Lots of colleges are scratching to survive themselves. The colleges recruit students who have to borrow money to complete their degrees.

The colleges have a slew of liberal arts courses which will do little to help guys after graduation. A lot of people need to graduate with a technical degree and then get a productive job. They can pick up art appreciation later.

This whole system needs to be improved upon.

Puffer


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#387909 - 03/01/12 12:33 PM Re: Student Loan Crisis [Re: pufferfish]
Fissy Tsickens Offline
Member
MaleSurvivor

Registered: 09/23/08
Posts: 466
Loc: Bassett, Virginia
You're right, Allen. We can read about how inferior our students are compared to test results of other students in other nations. But we're the only nation so, I don't know, either naive or full of ourselves that think all students need to go to college. Look at Japan or Finland, those super-high scorers. They track kids at about sixth grade, directing high academic performers to academic (college prep) programs, and syphon off the less academically gifted to programs more career/technical oriented. I've been in public education for 25 years now, and I see wisdom in how other nations educate their kids. If we send everyone to get a degree, who's going to fix our oil burners? Who will repair our cars? Who will build our bridges and buildings, or pave our roads? More importantly, who will raise the children since American parents are doing so little of that these days? (Ooops, slipped into rant mode. Sorry.)

Americans have got to develop a more realistic mindset. Not every child is college material.

Peace,

John

_________________________
Wish that I could cry
Fall upon my knees
Find a way to lie
About a home I’ll never see

It may sound absurd...but don’t be naive
Even heroes have the right to bleed
I may be disturbed...but won’t you concede
Even heroes have the right to dream
It’s not easy to be me

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#387940 - 03/01/12 03:44 PM Re: Student Loan Crisis [Re: Fissy Tsickens]
JustScott Offline
Greeter Emeritus
MaleSurvivor

Registered: 01/27/08
Posts: 2591
Oh but what will happen to all those college admins huge massive salaries if Americans suddenly decide that everyone need not apply!?

Golly it'll just ruin everything! They've done so well building a money making machine for themselves, we can't possibly let anything be changed cuz then those fellows won't have as much money to trickle down to... their own portfolios!


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#389736 - 03/18/12 10:23 PM Re: Student Loan Crisis [Re: JustScott]
Vadrian Offline


Registered: 09/10/11
Posts: 111
Loc: Pacific
People should be able to study subjects of interest in the humanities that benefit themselves and society as a whole; college is not meant to be just about technical job training. Many abused kids see college as a way to get away from their abusive families and start afresh, but instead they are often penalized for this by being locked into debt, which sometimes even has to be co-signed by their abusive parents, thus legally binding them to these people forever. And when the abused kids graduate with not only massive debt but the trauma hanging over their heads in a recession economy, the results can be quite terrible.

In fact, the astronomical costs of college education today compared with back in the 60's when it was free or very low cost, is a form of abuse itself by older generations on younger ones.

Anyone qualified should be able to attend a four-year college and study whatever they like without entering into life-long debt bondage. Many other countries have such a system, and it enables people to leave their abusive families at a young age if they need to, because the social welfare state is there to liberate them. As many people as possible getting a liberal arts education adds a great deal to the development of our humanity.



Edited by Vadrian (03/18/12 10:26 PM)

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#389777 - 03/19/12 09:45 AM Re: Student Loan Crisis [Re: Vadrian]
Still Offline
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MaleSurvivor

Registered: 02/16/07
Posts: 7011
Loc: FEMA Region 1
Originally Posted By: Vadrian

Anyone qualified should be able to attend a four-year college and study whatever they like without entering into life-long debt bondage. Many other countries have such a system, and it enables people to leave their abusive families at a young age if they need to, because the social welfare state is there to liberate them. As many people as possible getting a liberal arts education adds a great deal to the development of our humanity.


So much of this society has become responsive to 'market demand according to income,' rather than enrichment of society (as you stated). It gets even worse for us all where book publishing is involved. If there's no proven and specific demand for a certain 'type' of book, it will never see ink.

By today's methods of publish-or-not decision making, Angela's Ashes would never have been published.


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