Lawmakers and those working in the financial industry have been predicting for some time that student educational debt will be the next big financial bubble to burst. Illinois Senator Richard Durbin recently took aim at the private student-loan industry, advocating for new rules that would permit educational debts to be cleared away during bankruptcy, reports the Washington Post. The ballooning cost of higher education and the long-term effects of student loan debt have caught the attention of lawmakers in Chicago and across the nation. Some believe the current restrictions on discharging educational debt must change.
Last month, the Senate judiciary subcommittee held a hearing to discuss the problem. As our Cook County bankruptcy lawyers know, the Federal Reserve Bank of New York issued a study finding that Americans owe about $870 billion in student loans. That whopping figure surpasses the amount of outstanding credit-card debt or automobile loans. Even worse, according to the report, more than a quarter of borrowers had past due balances.
Those of us working in Oak Park bankruptcy are concerned about high educational debt, too. We realize that many Chicago area residents are bearing the heavy burden of paying back substantial student loans. This, in turn, jeopardizes their overall financial security, and can impede their ability to buy a home, take out a car loan, or pay off medical debt. Frequently, high debt, including educational debt, also goes hand-in-hand with the threat of Illinois mortgage foreclosure.
Currently, consumers cannot discharge student debts even if they file for bankruptcy. Thus, those debts can cast a shadow over one’s financial security for decades. Other debt, such as mortgages and credit card debt, typically can be discharged. As Senator Durbin said during his opening comments at the judiciary subcommittee hearing, “It is clear that too many students have been steered into loans that they will not be able to repay and that they will never be able to escape.”
What is particularly concerning for us is that it is not only young people who are burdened with heavy debt. The New York Federal Reserve study found that Americans 60 and over accounted for nearly 5% of past due student loan balances. Rather than focusing on retirement and health care costs, notoriously high for older individuals, they are instead concerned about paying decades-old educational debt. One consumer advocate who works for the National Consumer Law Center said she works with consumers in their 80s whose Social Security checks are being garnished to pay for old student loans.
The legislation sponsored by Senator Durbin would permit private student loan debt to be discharged in bankruptcy. Consumers would still have to pay back their federal student loans. This may not even go far enough, however, as it is likely that the bulk of student loan debt stems from federal loans.
So, the jury is still out on how to resolve the problem of student loan debt, an issue one consumer group has called the country’s next “debt bomb.” It is important to note that while the law is still evolving in this area, Chicago bankruptcy law does permit many types of debt to be discharged. Therefore, it is crucial to find out if you are eligible to file for bankruptcy if you are struggling. There are many viable avenues to pursue to help you and your family regain financial security. Please contact our firm today if you have questions about the process of filing for bankruptcy.
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