It's not easy finding a job.
Gone are the days where you can obtain a job by simply sauntering through the door. A high school diploma doesn't cut it anymore! Now, even a bachelor's degree isn't enough to get that coveted dream job with all its benefits and perks. There are just not enough jobs for the most recent wave of newly qualified students. Furthermore, there are increasing amounts of pressure to obtain employment, which corresponds with another looming threat hanging over college grads' heads: student loans.
Americans owe more than $1.64 trillion in student loan debt, and the average 2019 graduate owes $29,900.
In extreme cases, some students graduate with over $200,000 in debt! Most graduates don't find a new job immediately after graduating, especially not one that can cover both their personal expenses AND debts. For some, there is only one solution to their monstrous mountains of debt: bankruptcy.
Bankruptcy is a serious decision many do not take lightly. To begin with, there are mandatory fees that are included in filing for bankruptcy. A handful of lucky individuals may qualify for some of the fees to be waved or to receive free legal aid, but it is a very select few.
Not to mention, it's extremely difficult, next to impossible, to file for bankruptcy for student loans.
Less than 0.5% of student loan holders end up clearing their debts in bankruptcy.
Why? Why aren't student loans forgiven as part of the bankruptcy procedure?
Well, my dear, student loans are nondischargeable, meaning, that borrowers are obligated to repay them. You can declare bankruptcy in hopes of getting a fresh start, unburdened by previous debt, but your student loans would NOT be included.
A long, long, time ago, (before the internet even existed) all education loans were dischargeable in bankruptcy. Precisely in 1976, the bankruptcy laws were changed so that loans made by the government or a non-profit college or university could not be discharged during the first five years of repayment. Nearly a decade later, the Bankruptcy Amendments and Federal Judgeship Act of 1984 enacted new laws declaring that all private student loans were also excepted from discharge.
During the next twenty years, Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, hereby claiming that no student loan, federal or private, could be discharged in bankruptcy. The only exception to this law is if the borrower can prove that repaying the loan would cause “undue hardship,” a condition that is incredibly difficult to demonstrate unless the person has a severe disability. Student loan debt isn't the only non-dischargeable payment, included in this exclusive club are child support and criminal fines. Who knew student loans were comparable to criminal fines?
Why are students dischargeable in the first place? What are debtors scared of?
Debtors are deathly afraid of opportunists that could play the system to their advantage. To paint a vivid picture of this potential problem, let's call this the Tom Crook conundrum.
Tom Crook is a recent college grad with a degree in biochemistry, but instead of finding a job, he decides to rack up large debts. After tarnishing his credit score, he avoids repaying by declaring bankruptcy. All his student loans along with his other previous debts are wiped, and he is free to get a job using that biochemistry degree. All the money he earns from his new career will not go towards paying any loans, instead, he gets to keep his earning to himself. Tom Crook just beat the system.
They are many others who could possibly follow in Tom Crook's footsteps. They could do all this before obtaining their jobs AND enjoy the privilege of having their debts wiped AND KEEP all the the money they gain from their lucrative careers. This scenario would create such chaos, it could potentially destroy student loan programs for good... DUN DUN DUN.
Oh my, then student loans shouldn't be dischargeable. The system is perfectly fine as it is. Why change anything?
Most people that file for bankruptcy choose to do so due to unemployment, large medical expenses, seriously overextended credit, and marital problems. Recent college grads aren't exempt from these problems. They too often face these common issues, with unemployment being a particularly strong factor.
The inability to find a job straight out of college is one of the number one reasons a student might struggle to pay back their loans. How can a student begin to make payments when they aren't making a substantial income? Now add in a monthly rent, car payments, and other personal expenses. Working retail or fast food barely counts as a livable wage. Imagine having to pay thousands of dollars in loans, with terrifying interests rates. Not only are you starting from absolute zero, but in the NEGATIVE!
You've lost the game before it's even begun.
Okay, I see why someone might need to do it, but is it really worth it?
Filing for bankruptcy damages your credit severely and appears as a public record for the next 10 years after filing. This could impede future rentals and drive a huge increase in interest rates, but for someone who truly is drowning in debt, this could be their only viable solution. If medical bills, car loans, and credit card charges can be forgiven, why shouldn't student loans be included as well?
When a student takes out a loan, it is usually before the age of 21. Sure, one may legally be called an adult at 18, but if you can't drink before 21, surely you can't be entrusted with taking thousands of dollars in debt, right?
Besides the obvious problem with allowing teens to take out thousands of dollars in loans, another benefit of allowing student loans to be dischargeable would be giving minority students a fighting chance in a system rigged against them.
If student loan debt were reduced for households making $50,000 a year or less, the wealth gap between black and white households would decrease by nearly 37%, and by over 50% among those making under $25,000, according to a study by the Institute of Assets & Social Policy at Brandeis University and Demos. While black students graduate with more debt than white students, the disparity only grows and they owe double what their white counterparts owe within four years.
First generation, minority college students would benefit greatly in changing the laws surrounding bankruptcy and student loans. They are often the demographic that are forced to make the difficult decision of taking out loans. They come from families that struggle to make ends meet and have probably not been able to contribute to their educational fees. Tweaking the laws to their favor could potentially give these students a much needed boost and even out the playing field.
People only turn to bankruptcy when they feel overwhelmed with their debt and feel that it is their only chance. Overall, the process should be facilitated for students fresh out of college struggling with exorbitant loans. If a student is unable to cover their basic expenses, their loans should be partially forgiven or put on hold until they are financially stable.
Instead of further digging students into a hole, we should keep an open mind on how to help the next generation of workers to get a footing in this world. After all, how can one begin to change the world when they have student loans to repay?
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