Monday, May 13, 2013

Who gets Lower Rates? Wall Street Banks or Student Loans?

Wall Street Banks Get Lower Rates Than Student Loans AND Can Bankrupt Their Loans From The Government

…Fair?

 

Bankruptcy remains a source of financial relief for most borrowers.  Most debts are discharged in bankruptcy and folks receive a “fresh start”. However, there is one huge exception that is not discharged automatically in any bankruptcy - student loans.
 
Both government and private loans are not discharged in bankruptcy. Student loans are dischargeable in bankruptcy cases only if the student can prove that the loans cannot be repaid without undue hardship, now or at any time in the future.   Providing undue currently hardship would seem to be easy — after all, bankruptcy means broke, right?   The difficult part is proving that the hardship will continue indefinitely into the future.  Absent a permanent disability, this standard is seldom met. So, the practical consequence is that student loans are largely considered “non-dischargable.”

There may be some relief in the future – at least with private student loans. 

A meaningful push to revamp the current loan is being made by Elizabth Warren, a former Democratic Senator from Massechusetts. 
There, Elizabeth Warren served as the interim potential head of the Consumer Financial Protection Bureau, but her permanent appointment was blocked by partisan politics. Undeterred, Elizabeth Warren ran for Senate shortly thereafter. Warren now serves on the Senate Banking Committee, where she has introduced her first piece of legislation:  “The Bank on Students Loan Fairness Act.” Ms. Warren proposes a radical change:   to give individuals the same interest rate that the big Wall Street banks obtain, an interest rate of about .75% on loans they obtain from the government. The interest rate for Stafford (government backed) student loans is currently set at 3.4% and is set to double to 6.8 percent in July.

As Warren explains, this student loan problem is a quiet but growing problem.  She explains that taxpayers are investing in the big banks and that taxpayers should invest in our students.    America should not be “drowning our students in debt while we give a great deal to the banks.”  She points out that economists have stated that defaulted student debt poises a problem and barrier to the recovery of our economy.    She concluded with a call to action and a reminder that students have only their voices, not lobbyists, to ask Congress for equal treatment.

Why should our government make it so easy for Wall Street to skip out on debt while requiring students, our future, to jump hurdles and hire attorneys to obtain financial relief?

Ms. Warren, a former Harvard law professor, understands the financial pressure faced by most Americans as she came from a working-class background, becoming a waitress at age 13 (after beginning as a babysitter at age 9).  Ms. Warren has authored 9 books, including two best sellers.  Let’s hope her efforts produce some meaning change.


If you are struggling with student loan debt, call us today to schedule a free consultation with attorney David L. Speckman.



619-696-5151
1350 Columbia Street, Suite 1350
San Diego, CA 92101

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