The American government has launched a new attack against people looking to have their student loan payments eased, as the United States Department of Education recently intervened in a legal case of an individual who was trying to have his student loans erased in a bankruptcy filing.
Under current laws, student loans can only be erased in extremely rare situations, and the American government is doing everything it can to keep it that way. Borrowers must prove that they have a “guaranteed certainty of hopelessness” in order to have student loans forgiven.
Lawyers for the Department of Education are saying that if any leeway is given to borrowers, then the entire fiscal stability of the student loan program would be in jeopardy.
The lawyers do have a point; if people took out more student loans than they could afford because they thought that they would be easily forgiven, it could lead to an event much like the financial crisis of 2008, when people took out mortgages that they couldn’t afford.
However, this could result in people having to work past typical ages of retirement, where their opportunities for employment are extremely limited.
These actions from the Department of Education are nothing new. The department has traditionally pressured courts to apply the harshest possible standards when taking the pleas of bankrupt students into consideration.
When a person files for bankruptcy, the person typically has all of their debts forgiven, but their credit rating is essentially destroyed for up to ten years.
However, student loans are a unique type of debt, in that an individual must prove to have suffered from extreme circumstances in order to have such debts removed.
That being said, these extreme circumstances have never been defined. Courts have had to determine how poor a person must be and how long they must be stuck in such a situation in order to have their student loans forgiven.
Traditionally, that threshold has been extremely high. A person in debt typically has to convince the court that making student loan payments makes life essentially not worth living.
In hearings, courts go through all of a person’s daily expenses to determine if they can maintain a minimal standard of living if they have to continue to make student loan payments. Courts have considered things like contributions to retirement accounts, dinners at fast food restaurants, cell phone plans and nutritional supplements to be luxury expenses.
The government says that such scrutiny of one’s financial life is needed to protect the student loan program. However, many people obviously consider these fears to be heavily exaggerated.
For now, the Department of Education will most certainly continue to pressure courts into making life difficult for people in student loan debt.