Caution ahead, higher education in America can be hazardous!

By: R.A. Monaco
May 21, 2011

Amazingly, these days seeking an advanced degree in America routinely puts students in far worse financial troubles than if they hadn’t attempted to further their education at all. In fact, student loan debt can be likened to getting a tattoo when you’re young - it’s easy to get and awfully hard to get rid of.

The front page of the New York Times on Thursday reported, “Many With New College Degree Find the Job Market Humbling.” In fact, the median starting salary for students graduating in 2009-2010 was $27,000, down from $30,000 for those who entered the work force in 2006 to 2008. But those figures are for the lucky ones who found a job. Increasingly, new college graduates are forced to settle for jobs that don’t require a college degree. So it’s not surprising that they are earning far less than their peers as a result.

Meanwhile, college graduates are having trouble paying off student loan debt, which is at a median of $20,000 for graduates of classes 2006 to 2010. Arguably, if these students had a nickel for every time they’ve heard a politician in Washington or elsewhere say that education is the key to solving all of our underlying societal problems, their problems too would likely be solved. Unfortunately, this is where the student debtor’s problems just begin.

Credit card borrowers, unlike federal student loan borrowers, enjoy the fundamental consumer protections afforded all other borrowers with all other types of debt. The fact is that federal student loan borrowers enjoy almost none of those protections- not bankruptcy protections, not statutes of limitations, not state usury laws, not even truth in lending laws. The federal student loan lending system enjoys unparalleled collection powers where student debtor’s wages, income tax returns, even Social Security and disability income are routinely garnished without court order and with no appeals process.

In 2005 Congress changed the bankruptcy rules so that it is nearly impossible to get rid of debt obtained for education even from a private loan from a for-profit lender like Citibank who, by the way, was bailed out twice in this most recent mortgage crisis. The 2005 changes which included private for profit loans into the bankruptcy code has had a disastrous affect creating an inherently predatory lending system that has grown our national student loan indebtedness to a point in which it now exceeds credit card debt.

Fortunately, last April 15, 2010 a few courageous senators like Dick Durbin (D-IL), Sheldon Whitehouse (D-RI) and Al Franken (D-MN)have attempted to find a balance with the problem and introduced the Fairness For Struggling Student Act (§3219) in the U.S. Senate. They’ve proposed that private student loan debt be allowed discharge under a modification of the U.S. Bankruptcy Code. However, their being heard over Tea Party rants and seriously considered at a time when voters are furious about the mortgage crisis and bank bailouts now seems like a steep mountain for climbing.

While these loans are non-dischargeable in bankruptcy except in extreme circumstances, for financially distressed student borrowers it may be worth seeking a confidential consultation from a qualified attorney to help determine whether there is an “undue hardship” sufficient to challenge the adversarial standard under the current provisions of the law.