It was recently reported that the student loan debt bubble was close to surpassing the $1 trillion mark. For people that don't know how much money 1 trillion dollars is, it's about $3000 of debt for every person in the US young and old. We know that everyone doesn't carry student loans, but over the last 20 years there has been a huge growth in children taking out loans to get a dream education. What's sad is people spend $50,000 on an education and end up flipping burgers or pumping gas because they cannot get a job.
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The average young adult 25 years old leaves school with $30,000 in consumer debt plus many of them have student loans also. I don't know what we are teaching our kids, but it seems the way it's going we are setting them up for failure. When people take these loans, they are optimistic about their future and don't think about filing bankruptcy at that time. Many young adults about 30 years old are considering filing bankruptcy and would like to throw in their gaggle of student loans to give them a fighting chance at beginning a decent life. The problem is it takes just about an act of Congress to include student loans in a bankruptcy filing.
For someone to include their loans in a bankruptcy discharge, they would have to have their bankruptcy attorney file a motion with the bankruptcy court to show undue hardship to continue paying on those loans. When you're 30 years old, that's pretty hard to sell to a bankruptcy judge. Usually, the only way to student loan debt gets discharged in bankruptcy is if the individual has health problems or a severe accident that will impede them from make a living for the rest of their life.
Over the years, the pendulum has swung from one extreme to the other in how Congress makes laws regarding bankruptcy. Currently, it seems like they are in the corner of the credit industry as banks. Back in the 1970s student loan debt was dischargeable in bankruptcy. Moving on to the 1980s, it changed to make it a little harder to include in a bankruptcy discharge but it was possible. The student loans were dischargeable in a Chapter 13 bankruptcy because of the payment plan and if the loans were older than five years they could be included in a Chapter 7 bankruptcy.
Fast forward to the 90s and the discharge was removed from Chapter 13 bankruptcy and the only way someone could include them is if they were older than seven years or show undue hardship. In 1998, Congress changed it to only allow these to be included in a bankruptcy discharge if the individual filing bankruptcy could prove undue hardship. Currently, since the passing of the BAPCPA of 2005 it's easier to include back federal and state income taxes then it is to get educational debts released.
Now young people are in bondage to the debts they incurred during the college years. With technology available, the lenders can easily chase down this group and attach anything they might come into owning. With such a high priority being put on going to college, there must be a better answer. Maybe if the debt bubble bursts, Congress will see fit to change the bankruptcy code back to what it was in the 70s allowing struggling families to include student loans when filing bankruptcy.
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