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Student loans are a substantial–and growing–burden for many Americans, especially those who are just now entering the job market after college. The increasing cost of higher education is a major concern for current and future students, and the inability to discharge student loan debt in bankruptcy affects every single borrower in the nation. A recent bill, introduced by Massachusetts Senator Elizabeth Warren, would have offered the possibility of relief from high interest rates for student loan borrowers. The White House endorsed the bill, but it died in the Senate in mid-June. While it would have offered relief to debtors, it would not have addressed the issues of cost or discharge in bankruptcy.

According to a report from the nonprofit organization American Student Assistance (ASA), about twenty million people attend college every year in the U.S., and about twelve million of them borrow money to do so. About thirty-seven million people have outstanding student loan debt, in a total amount approaching $1 trillion. The largest group of debtors by age, accounting for fourteen million people, are under thirty. CNN reports that the average amount of student debt for the class of 2012 was $29,400, an increase of almost $3,000 over the previous year. The general consensus seems to be that student loan debt is hindering the U.S. economy.

Legislation passed by Congress and signed by President Obama last year tied federal student loan interest rates to financial markets, which had the effect of lowering rates for the school year starting in 2013. Interest rates on subsidized Stafford loans doubled on July 1, 2013, from 3.4 to 6.8 percent, after Congress was unable to pass new legislation. As a result, Congress passed a new bill the following month, which the president signed into law on August 9, 2013. It reduced students’ rates to 3.86 percent.

Senator Warren’s bill would have provided a way to obtain better interest rates as markets permitted it. It would have allowed debtors to pay off high-interest-rate loans by taking out new loans at lower rates, similar to the process of refinancing a home mortgage. The federal government would be able to assume certain loans issued by private lenders, which supporters claimed would benefit borrowers and bring in additional revenue for the government. The bill failed after a Republican filibuster on June 9, 2014.

While the bill almost certainly would have helped student loan debtors who are struggling to repay their loans, it would not have addressed the issues that keep the total number of debtors growing, along with the total amount of debt. The rising cost of higher education depends on a wide range of factors with no easy solution. Perhaps most importantly for those who have finished their education, bankruptcy rarely offers relief from student loan debt. Under the Bankruptcy Code, 11 U.S.C. § 523(a)(8), a court cannot discharge student loan debt unless a debtor can prove “undue hardship” on themselves and their dependents.

The bankruptcy system offers a new start to people whose debt payments exceed the amount they can pay from their regular income. Bankruptcy attorney Devin Sawdayi has represented clients in the Los Angeles area in Chapter 7 and Chapter 13 bankruptcy cases since 1997. To schedule a free and confidential consultation to discuss how we can assist you, contact us today online or at (310) 475-9399.

More Blog Posts:

With Interest Rates on Many Loans Set to Double Soon, The Dischargeability of Student Loans in Bankruptcy is a Crucial Issue for Future College Students, Los Angeles Bankruptcy Lawyer Blawg, September 23, 2013

Student Loans and Bankruptcy, Part 2 – What Is an “Undue Hardship or Hardship Discharge”? Los Angeles Bankruptcy Lawyer Blawg, June 6, 2013

Student Loans and Bankruptcy, Part 1 – Are They Ever Dischargeable? Los Angeles Bankruptcy Lawyer Blawg, May 28, 2013