Student loan changes are coming
Image by Timo Stern via Unsplash
Currently, most student loans are federal student loans. But there are significant changes afoot for student loan borrowers. The current presidential administration is looking to redefine the college loan market to make it more competitive and possibly more affordable. Will these shifts come to fruition is one question. Initiatives don’t always make it to the law or regulation stage. Plus, whether they’ll benefit borrowers, as intended, is another concern. Here is what’s in the wind.
Undue Hardship under review
The Department of Education is looking to review the "undue hardship" standard. It is the threshold student loan debtors must prove to qualify for bankruptcy relief of student loans. It means that if forced to repay the loans, the debtor can’t maintain a reasonable standard of living for themselves and their dependents. As a result, debt repayment represents an “undue hardship.” Signs point to relaxing this standard which has been, until now, harshly enforced.
The second shift brewing is towards private lenders playing an even bigger role in the student loan market. President Trump is pushing for a more competitive marketplace with private loans representing more of the debt market than government-backed loans. This shift, if it comes to fruition, could bring both positive and negative effects for borrowers.
Federal versus private student loans
Federal student loans seem more attractive to borrowers because they’re easier to get than private loans. Plus, there are several repayment options, some based on income rather than debt load. There are also many loan forgiveness programs based on military or public service and high-need careers in some instances.
However, there’s a downside to federal student loan debt. Unlike private student loans, there’s no statute of limitations. It means that the debt can follow you to the grave and you can never escape it. Federal student loan debt collectors can take your income tax refunds, garnish your wages, or sue you and place a lien on your home, auto or bank account.
Uncle Sam can even wait until you’re in your golden years and take from your Social Security payments. In contrast, private student lenders find it more difficult to garnish wages and must follow the same debt collection path as other creditors like credit card issuers. Plus, if you don’t pay up, the statute of limitations clock will run out, and the debt loses its legal “teeth.”
Could a shift to private loans lower rates?
Federal student loan rates are set at a reasonable level and don’t change unless you refinance or consolidate your loans. Private loans are more flexible and competitive. If private lenders began competing more openly in this market, it’s quite possible that interest rates could be lower than federal loan rates. Plus, private lenders might offer more flexible repayment terms to lure borrowers away from the federal system.
Already, some borrowers refinance their federal loans into private loans to get more beneficial financing terms. The problem comes when the consumer can’t make their payments and might need the protections afforded by federal debt. Then again, that same federal debt can be far more difficult to extinguish than private debt for those that can’t afford their student loan payments.
Student loans – a growing economic crisis
With most students graduating with significant debt and more than $1.5 trillion outstanding with delinquencies on the rise, student loans are a growing concern. Loosening the standard for bankruptcy discharge of student loans would be one step in righting the ship. Already some judges are making it easier to defeat student loans this way. If you can’t pay your student loans and have extenuating circumstances, bankruptcy might be a better path for you.
To find out more, read reviews from satisfied clients then call +1-919-646-2654 to reach the Law Offices of John T. Orcutt and schedule a free student loan bankruptcy consultation at one of our locations in Raleigh, Durham, Fayetteville, Wilson, Greensboro, Garner or Wilmington.