Student Loans Discharged In Bankruptcy

Rather than taking on more debt to fund its programs or permitting middlemen such as Sallie Mae to sell (via securitization) government-backed loans to the investment community at a profit, the DOE should run its own loan-selling activity. After all, a guaranty is a guaranty whether its offered directly or through an intermediary. Moreover, the elimination of this added layer of costwhich investors would naturally view as a yield-enhancing opportunityshould be used to extract an important structural concession: the right to truncate or extend the durations of any or all the securitized loans it securitizes. The government would then be in a position to direct its subcontracted loan servicers to expeditiously transact the restructures, modifications and accelerated repayments its borrowers require. The only incremental taxpayer exposure would come from the losses that may arise from the private loans that flow into the program.

Last month , a group of senior bankers who advise the Fed warned its seven-member Board of Governors that too many students are graduating (or dropping out of school) with an unsustainable level of federal student debt, which they called a bubble [that] has many parallels to the subprime/housing bubble, according to a summary of their Sept. 20 meeting. Outstanding federal student debt has nearly doubled since 2007 to $1 trillion. That increase in debt has senior banking leaders worried because the banking industry could see fewer revenues in the future as creditworthiness deteriorates and borrowing capacity and consumer demand for auto, home, and other purchases declines. A generation of college graduates with a lack of expendable income could negatively impact the overall economy for years to come, the bankers told the Fed. Federal policymakers are counting on government programs that either trim overall debt or cut monthly payments to reduce the chances of a student debt-driven economic malaise.

Student Loans Are Becoming a Drag on the US Economy

10 in the nation for number of college students with debt, with 67% of graduates from four-year schools having loans to repay. College tuition costs have doubled over the last 12 years and Wisconsin’s student loan borrowers have an average debt of $22,400, and monthly student loan payments of $338 over 18.7 years for those repaying money borrowed to earn a bachelor’s degree, according to the lawmakers. Student loan debt is the only type of household debt that continued to rise through the Great Recession. The U.S. Federal Reserve System estimates that 753,000 Wisconsin residents have federal student loan debt. Nationally, nearly 40 million Americans hold more than $1.2 trillion in student loan debt, the second largest consumer debt in the country more than credit cards or auto loans.

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The BAP said that this test has three factors, which are: (1) the debtors past, present, and reasonably reliable future financial resources; (2) the debtors reasonable and necessary living expenses; and (3) any other relevant facts and circumstances. The debtor stipulated that her income, which fluctuated due to seasonal hours of operation at one of her jobs, was between $1,379 and $2,040 in 2012. She argued that her income was unlikely to increase in the future and testified that despite sending out more than 200 job applications she had been unable to find full-time employment commensurate with her education level. However, the bankruptcy court found the debtor to be articulate, poised, intelligent, and quite capable and concluded that she had ample to time to find the financial resources to pay NCSLT in the future. The BAP disagreed with the bankruptcy courts assessment of the debtors reasonably reliable future income.

For example, of the raw dollar amount of $38.7 billion in mortgage relief, as much as $27 billion of that came from short sales, where the servicer allows a sale for less than the mortgage is worth, freeing the borrower from making up the difference. This is better than a foreclosure, but as Kevin Whelan of the Home Defenders League said in a statement, Only on Wall Street can you push someone out of their home and call it relief. The lack of economic pain in the settlement for Wall Street is obvious as well. Just a sliver of the total went to actual write-downs of principal, which represents a loss the bank would certainly have taken anyway if they pushed the borrower into foreclosure. This punishment doesnt constitute a deterrent for the crime, which explains why so little has changed in mortgage servicing. Court cases crop up every day detailing a parade of horrors foisted on homeowners, including illegally breaking into their homes .

Follow @TIMEBusiness The housing recovery remains on track . But high levels of student debt threaten to hang over the residential real estate market for many years, acting as a drag on both household formation and higher prices. At the height of the housing boom, the U.S. was producing 1.4 million additional households every year. That figure plunged to 500,000 in the Great Recession . The number of new households is expanding again but remains stuck at 700,000half the peak level.


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