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Columnist: Congress Needs to Change Student Loan Bankruptcy Rules

Seven out of 10 college seniors graduated with student debt in 2012. From 2008 to 2012, debt at the time of graduation increased an average of six percent each year. In California, college graduates have an average of more than $20,000 of student debt.

Although there has been an overall increase in student debt, there has also been a tremendous jump in the number of individuals burdened by their student debt for years into the future due to a change in legislation. In 2005, the Bankruptcy Abuse Prevention and Consumer Protection Act was implemented, a law that made private student loan debt essentially non-dischargeable in bankruptcy. Prior to 2005, only federal student loans were difficult to have discharged.

This policy shift meant that college graduates who were unable to immediately find a job would be chained to their student loans for years to come. The interest quickly accumulates and banks tack on late fees. The loan is then declared to be in default and legal fees are added to the debt. The students and/or payments must then be subjected to a payment plan, which will most likely only cover the interest — as the loan may now be triple the original amount.

Worst of all, this debt is not dischargeable in bankruptcy. Banks and collectors may get a lien on the students’ or parents’ home, in addition to garnishing wages and bank accounts.

Students are not the only people affected by this change. According to the Federal Reserve Bank, student loan debt is growing faster for senior citizens than any other age group, as they often co-sign on their grandchildren’s loans. Since 2005, the percentage of student loan debt held by people over 50 has tripled when they should be looking toward retirement. Student loan debt also has the delayed effect on the nation’s economy, as those in debt are no longer contributing through the purchasing homes and other goods.

The cost of an education should not drive a person into financial ruin. To learn more about your options, speak with an experienced Los Angeles bankruptcy lawyer.

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