Student loans total about $1 trillion nationally. For many people they are the largest single debt obligation. There was a time when student loans could be discharged after 7 years. That was eliminated for student loans under federal or state loan programs. In 2005, Congress made even private student loans which were “tax qualified” non-dischargeable as well. As we have said before, this is an enormous burden for families, and it probably explains the explosive growth of tuition costs in the past decade.
Now, three Senators have introduced the Fairness for Struggling Students Act of 2013, which if passed would make only student loans made, insured, funded or guaranteed under a government program non-dischargeable. The accompanying statement points out that the private loans are a different animal, with different terms and few protections.
Whether this will pass is uncertain, but there is widespread recognition of the problem. Government programs do have “escape hatch” programs to reduce payments or even discharge loan obligations for those unable to pay them, or for those who meet certain government service requirements.
While laudable, this is not the entire solution. We support a program that would give student loans preferred status in Chapter 13, with a discharge upon meeting certain benchmarks, such as length of plan payment, or payment of a specified percentage.
Surely we should encourage and support people who seek advanced training or degrees. Such people are the key to future global competitiveness and economic security for all.
Anyone who is facing unmanageable student loan debt should explore their options. For many, this is not their only debt, and discharging other debt frees up income to pay these loans. Some loans have extended or income based repayment plans, or even non-bankruptcy hardship discharges. Our office has helped many such persons.