Steve Harms

Thursday, February 9, 2012

Collections of student loans: are we facing a debt bomb?

Student loans amount to about $1 trillion in outstanding debt, and many students are finding they just can't afford to pay them off!  A number of sources (just Google "student loan debt bomb") are reporting the default rate on student loans could be the next debt bomb, like mortgage defaults and foreclosures.

Although collectors have take solice in the fact that most student loans are not discharged in bankruptcy of the student, there is a hardship exception, which may be used.  Will bankruptcies with hardhip applications be the norm rather than the occasional exception to the rule?  That is the talk on the street.

There is talk of federal legislation to allow for a discharge of student loan debt following a five year "good faith" window of opportunity, but that is not likely to pass right now. (H.R. 2028 and S. 1102 are proposed changes to private loan discharges, but neither restore discharge for federal student loans).