There were a couple of developments in the past few days regarding help to student loan borrowers. There is currently over one trillion dollars in student loan debt nationwide, and while some of that is legally in deferment, only 37% is currently being paid. Student loan debt has more than doubled in the last ten years, particularly due to the ease of which it is handed out for so-called education that turns out to be useless. And by putting easy money into student’s hands, universities have been able to increase tuition, because people will pay more.
One of these new programs, as laid out in a recent article in the Huffington Post, eases the interpretation of when the Department of Education is supposed to oppose a bankruptcy debtor’s request that it would be an undue hardship for them to pay back the loan. Part of the analysis they undergo concerns the amount of the debt; they might be less likely to oppose the discharge of small debts. The document from the Department of Education says:
If a holder determines that requiring repayment would not impose an undue hardship, the holder must then evaluate the cost of undue hardship litigation. If the costs to pursue the matter in bankruptcy court are estimated to exceed one-third of the total amount owed on the loan (including the current principal balance, any unpaid accrued interest, and current, unpaid accrued collection costs), the holder may accept and/or not oppose an undue hardship claim by the borrower in an adversary proceeding.
The implementation of this is yet to be seen, as it appears to be discretionary with the lender.
The Obama administration also announced another new incentive, called “PAYE” for pay as you earn, which would cap student loan payments at 10% of a person’s income and would forgive the debt following 20 years of payment. As of right now, it’s only available to low income borrowers.