Major news outlets like CNBC have called student loans a "college debt crisis," and for many graduates, the weight of student loans has forced hardworking Americans to put off dreams of owning a home, having children, and starting a life beyond the college quad.
Suggestions of loan forgiveness, interest rate reductions, and lowering the cost of an education have become incredibly popular topics in Washington and around the country, but so far movement in this area has been incredibly slow.
The Emotional and Mental Impact of Student Loan Debt
"Time Magazine" reports that the past year has seen 10% of student loan borrowers fall into default, which is higher than any point in the last twenty years. Time also reports that the mental impact of heavy student loan debt may also cause health problems:
A study from Northwestern University linked debt to high blood pressure as well as poor self-reported mental and general health. The researchers looked at the National Longitudinal Study of Adolescent Health, which allowed them to analyze previously existing conditions of debt and health in subjects. They included 8,400 young adults, ages 24 to 32 years old.
Scientists already know that there's a significant link between debt and depression, but the study on student loans also suggests that the financial hardships that result from student loans also cause some surprising health problems.
Snowballing Student Loan Debt Levels
The Federal Reserve Bank of New York has kept statistics on student loan debt, and suggests that student loans are the only type of debt that's grown in size since the recession. The only type of consumer debt larger than student loans is mortgages, but that might not be the case if tuition costs continue to skyrocket.
As of statistics published in 2013, total student loan debt was almost at a trillion dollars with former students aged 30 to 39 exceeding a 15% default rate on their student loans. Unfortunately, the true picture of student loan default and repayment problems are likely underreported because of how many students have put their loan payments on hold through economic-based deferments.
Bankruptcy and Student Loans
According to legal encyclopedia and reference site "NOLO," the majority of debtors will not be able to discharge their student loans through Chapter 7 or Chapter 13 bankruptcy.
The exception is when an individual can prove "undue hardship" related to student loan payments. Each court treats this measurement differently, so there's no universal system for determining whether a debtor's circumstances warrant a student loan discharge.
One test used by the courts to determine a potential discharge is called the "Brunner" test. There are three criteria for this test which include:
- Poverty: A debtor's income must be at a point where current income and expenses don't allow for an appropriate standard of living when repayment of student loans is factored into the equation.
- Persistence: The current financial situation for a debtor must be such that there is no hope that finances will change and allow for repayment in the future.
- Good faith: The debtor must have made some reasonable efforts to repay student loans in the past.
There are other tests that the courts may use to determine whether student loans might be discharged. If you have significant student loan debt and are considering bankruptcy, you'll want to consider speaking with a lawyer to see whether the local courts might be amenable to a student loan discharge based upon your circumstances.
Interesting Solutions to Student Loan Debt
The banking industry and the federal government seem to be against radical solutions like subsidizing student education, reducing interest on student loans, and expanding loan-forgiveness programs, so some businesspeople have started coming up with some interesting ideas for solving student loan debt.
According to an article published by CNBC, college tuition is increasing in price at a rate that's twice as fast as inflation. An entrepreneur from Silicon Valley named Mike Cagney has suggested an interesting solution to help "solve" the debt crisis.
The former hedge fund manager, an alumnus of the Stanford Graduate School of Business, is the co-founder of SoFi, a startup that ultimately aims to make college alumni the primary source of student credit, instead of the federal government.
The program is designed to offer interest rates below standard Federal loan rates while also providing the alumni investors with some return on their investment.
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