Could Revised Chicago Bankruptcy Laws Ease Student Debt Bubble?
Bankruptcy has always been intended for Americans who need help breaking free from the burden of overwhelming debt.
Yet, since 2005, bankruptcy protection has been unable to help those with certain types of debt - namely, student loans.
Now lawmakers are debating whether bankruptcy laws in Chicago and other areas across the U.S. should be revised to include some education loans, according to The Wall Street Journal.
In 2005, Congress rewrote bankruptcy laws to ban the discharge of student debts through bankruptcy, citing concerns that new grads with few assets to lose would be too tempted to walk away from obligations.
Since then, skyrocketing college costs and increasing reliance on debt have created what some have termed the student loan bubble.
Even after adjustments for inflation, the average student debt load of new grads increased 24 percent between 2000 and 2010 to $16,932 - and many law and medical school students have debt burdens in the hundreds of thousands.
This year, collective student debt in the U.S. hit $1 trillion - more than our country's collective credit card debt.
Its weight is dragging down not only college students and their families, but the entire economy, as young consumers are unable to find jobs and, as a result, afford homes and cars.
It's no longer a question of whether students will be encouraged to walk away from their obligations if we help them, but whether they'll be able to survive financially if we don't.
New legislation would make it easier for college grads to reduce extreme debt. However, it would only apply to loans issued by private lenders like banks - not the government-backed loans that currently make up 90 percent of student debt. Politicians fear taxpayers would balk at picking up the tab if students were to default on loans handed out by Uncle Sam.
But while Chicago bankruptcy might not be able to directly relieve student debt, it can still relieve the burden faced by some young consumers.
College students and the relatives who have helped fund their education can free up money for education loan payments by reducing other forms of debt through bankruptcy - primarily credit card debt.
Those with large payments - whether for an education loan or a mortgage - tend to rely on credit to fund many everyday purchases. Filing for bankruptcy can help ease credit card debt, protect assets, and improve finances, making life with student loans a little easier.
To speak with a Chicago bankruptcy attorney about whether bankruptcy is applicable to your financial situation, call the DebtStoppers Bankruptcy Law Firm at 800-440-7235 for your free debt analysis.
More Blog Entries:
Parents Who Co-Sign for Kids Often End Up Bearing the Burden of Debt in Chicago: April 7, 2012
Illinois Runs Out of Financial Aid for College, Increasing Student Debt in Chicago: March 29, 2012
Additional Resources:
Trying to Shed Student Debt, by Josh Mitchell, The Wall Street Journal