Published in the New Haven Register here.
It has long been the case that people who are overloaded with debt and forced to declare bankruptcy can be freed of their mortgage and their credit card balances, but not their student loans.
Given the expense of a college education, student loans may in fact be a major portion of the debt that makes a person decide to go down the bankruptcy road. Having to carry that burden after liquidation is illogical and unfair.
Bankruptcy should not be the first option for anyone carrying debt; it’s not an “easy out.” It’s a tool offered by law that helps both creditors to receive part of what’s owed them and relieves much of the burden for those who file.
It’s uncertain whether student loan debt is creating a speculative bubble, as subprime loans did, but Forbes notes that graduates who have large monthly loan bills will not have money to spend on other goods.
According to money.usnews.com, 2014 college graduates carried an average $33,000 in student loans each to weigh down their diplomas. That debt has been growing each year. In Connecticut, 61 percent of graduates owed an average of $27,816 in 2012, according to the Project on Student Debt.
U.S. Sen. Tom Harkin, an Iowa Democrat, has introduced an education bill, part of which would be to include student loans in bankruptcy. It’s called the Higher Education Affordability Act, and it includes a host of provisions besides allowing debtors to be freed of student loan debt.
But in fact Harkin’s bill doesn’t go far enough. It wouldn’t discharge all student loan debt, only those loans issued by such private companies as Sallie Mae and Wells Fargo. Student loans backed by the federal government, such as Stafford loans, would not be included.
Stafford loans have low interest rates and may be small compared with private loans. However, it is unfair to the private lenders, as well as to those who carry federal student loan debt, for federal loans to be exempt from Harkin’s legislation.
Student loans should be included when a person declares bankruptcy, so that that person can forge a new financial beginning. But that should include all loans, not just those issued by private lenders.