St. Cloud lawyer, Wesley Scott is outraged about the mounting debts student loan borrowers are facing. The bankruptcy attorney has written at least four times to U.S. senators from Minnesota about the issue. Specifically, he wants Senators Amy Klobuchar and Al Franken to help change Chapter 13 bankruptcy rules to make student loan debt dischargeable, as with other debts in bankruptcy.
Graduates of four-year post secondary programs in Minnesota faced an average debt load of $32,000 in 2014. That number was $21,000 in 2005, according to The Institute for College Access & Success.
The bankruptcy code used to be more lenient, allowing people to discharge their student loan debt. It still does, but the deck is stacked against borrowers and it’s something that rarely happens. Debtors must show an undue hardship in court.
Bankruptcy lawyer Scott is proposing one other change to the law, an “at least” option, which would allow debtors going through Chapter 13 proceedings to make payments on their student loans designating them as a priority debt.
Under the current Chapter 13 provisions, people in bankruptcy need to first eliminate debts such as unpaid child support, taxes and mortgages. Debts from student loans, medical bills and credit cards are paid at the end.
In an emailed statement, Franken said student loan debt should be eligible for discharge in bankruptcy, but, “it’s clear we need to address this problem on several fronts.” The senator said he has introduced a bill that would allow people to discharge private student loan debt, one to address tuition costs and another allowing students to refinance their debt.
Also in an emailed statement, Klobuchar said she is supporting a bill that would allow refinancing and one that would strengthen the federal Pell Grant program, which provides payments- not loans, to students.
The total value of outstanding federal student loans was about $1.2 trillion in the first quarter of 2016, up more than 130 percent from $516 billion in 2007. From July 2006 to June 2015, interest rates for federal loans ranged from 3.4 to 8.5 percent. They now fall between 4.3 and 6.8 percent.
Those figures are affecting about 42 million Americans with federal loans, not including private student loans. With no relief in bankruptcy, some people are turning to other options.
A woman with approximately $70,000 in student loan debt went to visit a St. Cloud bankruptcy attorney with her husband. But after leaving the attorney’s office, the couple went upstairs to a divorce lawyer. It was not because they didn’t love each other anymore, the woman had to be single to qualify for an income-based repayment plan. That’s the only way they could survive.
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