That is bad news, according to the bankruptcy attorneys, who say the effect of student loans can hurt the entire economy as students cannot get jobs once they graduate with debt hanging over their heads and some young people avoid going to school because they do not want to incur the debt.
Changes in bankruptcy laws in 2005 made it harder for students to discharge debt through bankruptcy no matter how dire the circumstances, said U.S. Representative Steven Cohen, who participated in a recent teleconference by the Bankruptcy Attorneys Association. Cohen is sponsoring a bill to make it easier for students who cannot repay to declare bankruptcy and have a chance to rehabilitate their finances.
There is also a problem of disreputable private loan agencies making loans they know students will not be able to repay, said John Rao, attorney at the National Consumer Law Center and vice president of the National Association of Consumer Bankruptcy Attorneys.
Students need to know the terms of the loan and whether they have a reasonable expectation of repaying it, he said, or you end up with the same situation as the bad mortgages that were made in recent years.
-Karen DeMasters