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Rising student debt

The amount of debt that students are left with after graduation is on the rise. The national aggregate level of student debt has nearly doubled since 2008 and is now at $1.3 billion. Nearly 25% of those who have student loans are behind in their payments. The levels at a state-level vary however; on the low end, students from North Dakota carry on average a balance of about $22,379 due to Direct Loans or Federal Family Education Loans, on the high end of the scale, students in the District of Columbia owe, on average, $40,885  in student loans.

To combat the issue of students graduating with a huge debt to pay off, the White house has proposed a “Student Aid Bill of Rights,” which would aid students in negotiating with companies who collect student debt payments on behalf of the federal government. In addition, the White House revealed that they were looking into logistics regarding facilitating Americans wishing to expunge student loans in the bankruptcy process. This would allow student debt to be treated in much the same way that credit-card debt is dealt with when declaring bankruptcy. Currently, there are laws that restrict bankruptcy courts from discharging student loans. As it stands right now, the cost of borrowing for student debts is very low. Some fear that by allowing student debts to be forgiven in bankruptcy court, it would drive up the cost of borrowing across the board for all students seeing financial assistance. This is because lenders would have to take into account the possibility that the student could default on his loan, which would add to the risk associated with the loan and result in higher interest rates. The passage of such a bill would require a vote from congress, which is currently controlled by republicans, who typically do not vote in favor of this type of proposal.

Although there is considerable attention on the ballooning level of student debt right now, an analysis by the Wall Street Journal found that annually fewer than 1,000 people try to discharge their student loans through the bankruptcy process. This is due to the uncertainty and the cost-prohibitive nature of this method as a way of riding oneself of student debt.

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  1. HeeJu HeeJu

    I agree that discharging student loans upon declaring bankruptcy would become the most controversial issue in this debate. While you state that the reform will make student loans more like credit card, I think the two loans are already similar in that they both have high interest rate due to relatively large uncertainty among creditors about repayment.

  2. I’m curious what interest rate student loans bear. Are they all alike? What would monthly payments be? That’s a critical part of affordability.

  3. deplautt deplautt

    Student debt is obviously a huge problem. In theory the idea of being able to get rid of it through the bankruptcy process seems logical in comparing it to credit card debt. However, the notion that this may drive up the cost of borrowing is very concerning. A fix for those who are already in trouble may end up making educational attainment even more difficult than it already is.

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