20 Apr Student Loan Hangover – The Economy And Bankruptcy
Student Loans are a necessary evil for most individuals looking to pursue higher education. They were for me, and as I look back, I didn’t have to worry about the economy or a difficult job market after I dealt with the bar exam.
Historically, when times get tough, many people go back to school, and they upgrade their skills or pursue a Bachelors or Masters Degree. Normally, this is a very smart path to pursue. However, it today’s economic climate, the price of higher education may be too high, and the education may not be worth the price most people are willing to pay because of what I like to call the student loan hangover. My student loan hangover lasted over 10 years.
Almost everyone knows by now, that the 2005 amendments to the Bankruptcy Code made most student loans non-dischargeable. This means that students coming out of school now with $2,500.00 to $250,000.00 in student loans will have to make certain financial decisions about their future employment and lifestyle. Also, this economy and job market may lead some potential law, medical and MBA students to think twice about their career choices. All one has to do is look at the interest and penalties that accrue if you default on a student loan to realize that you may have made a bad choice.
The student loan default rate is at a twenty (20) year high and will continue to climb based upon rising unemployment numbers. I have interviewed more people with student loans in the last month than I have in a normal year of my practice. These individuals have either their own student loan debt or they have taken on student loans for their children’s education.
When you add the student loans to the cost of housing and normal monthly living expenses, it doesn’t take a rocket scientist to do the math. Many times student loans are the straw that is breaking the camel’s back. Based upon what people are telling me, they were relying upon their equity lines on their homes to finance their children’s education; however, the equity lines in Florida are non-existent in today’s world.
The people who are filing for bankruptcy protection and paying a portion of their student loans are barely scraping by and leaving very little for the other unsecured creditors. But for these individuals, the student loan hangover is delayed until the bankruptcy discharge is entered. Only then will the hangover really be felt. After that individuals other debts are discharged, they must now begin paying back their non-dischargeable student loans.
The cost of housing and normal monthly living expenses cannot be deferred until your student loans are paid. So, what happens? Well, I hate to say it, but I see people cutting corners to survive, and it kills me. I spoke with a single mother the other day who said that she cannot afford health care for herself or her children because of her student loans ($30,000.00). She lived modestly with rent ($700.00 per month) and car payment ($275.00 per month), and she was working two jobs to make ends barely meet.
It seems to me that this country is on a collision course with reality. I’ve heard it called a suicide mission. I don’t know what you call it, but I can honestly say, it’s different from the place that I grew up in. I don’t have all the answers, and my biggest problem is that I don’t even know if we are asking the right questions.
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