Friday, February 10, 2012

We Petition the Obama administration to: Return Standard Bankruptcy protections to ALL Student Loans
Bankruptcy protections must be returned to all student loans. with no qualifications, and no exemptions.


Student loan debt is different than other types of debt on the one hand because individuals incur the debt to purchase education, a truly unique commodity.  If all goes well, education leads to economic rewards.  College graduates earn significant more money than those without degrees and are more likely to be employed. (Sandy Baum, Jennifer Ma, & Kathleen Payea, College Bd. Advocacy & Policy Ctr., Education Pays: The Benefits of Higher Education for Individuals and Society (2010)).  However, this is not always the result.  A bachelor’s degree may be just the beginning of a student’s educational journey.

Other students, including many lower-income individuals, fall victim to the practices of unscrupulous proprietary school (also known as for-profit schools). These practices are a tremendous source of frustration, financial loss, and loss of opportunity for consumers, particularly low-income consumers hoping to break out of poverty.  Attracted by the financing provided by government student loan and grant programs, many proprietary school scams and ill-conceived school have exploited federally funded student assistance programs.

Education is particularly critical for people entering the job force for the first time.  This group includes many welfare-to-work clients, domestic violence survivors, and new immigrants. In addition, those re-entering the job force after layoffs or hoping to transition into other types of work because of unemployment or disability also often look to education to move ahead.  Although student loan debt is a problem that crosses class lines, low-income students are much more likely to borrow and borrow more.  (The Project on Student Debt, Quick Facts About Student Debt (Jan. 2010), at http://projectonstudnrdebt.org/files/File/Debt_Facts_and_Sources.pdf)

In general, the consequences of student loan defaults have grown enormously over time as the government’s collection powers have steadily increased.  The government has collection powers far beyond those of most unsecured creditors: can garnish a borrower’s wages without a judgment, seize the borrower’s tax refund, seize portions of federal benefits such a Social security, and deny the borrower eligibility for new education grants or loans.  To compound the problem, collectors are allowed to charge fees that create ballooning balances.  Even in bankruptcy, most student loans must be paid.  Unlike any other type of debt, there is no statute of limitations.  The government can pursue borrowers to the grave.

For borrowers in default, education, initially seen as a way out of poverty, instead often leads them onto a cycle of endless debt.  They find themselves in a trap.  Student loan debt from the past keeps them from going back to school and moving into higher-paying jobs.  On the other hand, most cannot afford to go back to school and get additional training without some type of financial assistance.

The good news is that there is almost always something that borrowers can do to challenge federal student loan collection actions and either cancel a loan or set up an affordable monthly payment plan.  Understanding borrower cancellation and repayment rights is the key to assisting people with student loan problems.  Resolving these problems is often a critical step in helping people get back on their feet financially.  Options for privet student loan debt are more limited, but there is some relief available for these borrowers.

Student loans were dischargeable in bankruptcy prior to 1976.  With the introduction of the US Bankruptcy Code (11mUSC 101 et seq) in 1978, the ability to discharge education loans was limited.  Subsequent changes in the law have further narrowed the dischargeability of education debt.

2011: President Obama issued an executive order making the new version of income-based repayment available to borrowers two years earlier.  To be eligible, borrowers may not have any loans from before 2008 and must have at least one loan in 2012 or a later year.

The US Bankruptcy Code at 11 USC 523(a)(8) provides an exception to bankruptcy discharge for education loans.  Here is the current legislative language, as amended by Section 220 of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), P.L. 109-8, effective October 17, 2005:
523(a) Exceptions to discharge:

(8) unless excepting such debt from discharge under this paragraph would impose un undue hardship on the debtor and the debror’s dependent’s, for
            A.
i.          an educational benefit overpayment or lean made, insured, or guaranteed by a governmental unit, or made under any program funded by in whole or in part by a governmental unit or nonprofit institution; or
B.        any other education loan that is a qualified education loan, as defined in section 221(d)(1) of Internal Revenue Code of 1986, incurred by a debtor who is an individual.





Please, sign this petition and share with others by March 23, 2012.  This will allow many low income students, who does struggle with heavy financial burden to discharge his/her student loans in bankruptcy as any other consumer loans.



We the People