A recent article on CNBC.com reported on the student debt explosion in the United States. According to the article, in 2009, about 67 percent of college graduates had an average of $24,000 in debt, which is an increase of 6 percent from 2008. For the first time, Americans owe more money on their student loans now than on their credit cards.
The article notes that student loan debt in the U.S. is increasing at a rate of about $2,853.88 per second, and by 2012 will be over $1 trillion. This is because the cost of college is increasing faster than medical care costs, and is rising at two to three times the inflation rate. With graduates facing mounting student debts and the worst job market in many decades, thousands across the country are struggling to pay back their loans.
Commenting on the crisis, Iowa Senator Tom Harkin said, “There’s a lot of similarities between what’s happening with student loans and the housing crisis.” However, there is also one major difference between the two: unlike a mortgage, which a homeowner is able to refinance or face foreclosure, student loans don’t go away. By law, student loans are not able to be erased in personal bankruptcy filings, with little exception. Additionally, there are few and limited options for restructuring or refinancing student loans.
The federal government has put a program in place to assist borrowers from defaulting on their student loans, known as the income-based repayment plan. The program permits borrowers to restrict their monthly loan payments based upon a portion of their income. If timely payments are made for 25 years, the government will forgive the remainder of the loan, but this amount is considered taxable income. However, the program has significant restrictions, and only applies to borrowers whose federal student loans have not defaulted, and does not cover private loans.
The student loan crisis has prompted legislators to draft bills to change the laws regarding bankruptcy protection. Currently, bills are pending in the House and the Senate to restore bankruptcy protections for student borrowers.
If you are facing significant student loans that you believe severely impede your lifestyle and may cause you to face bankruptcy or foreclosure in New Jersey, it may be in your best interest to speak with a New Jersey student loan debt attorney, who can advise you on the legal options available to you. Call 866-503-5655 to speak with a lawyer at The Law Offices of Robert Manchel today.