By Kinan Alhoch (Contact)
To be delivered to: The United States House of Representatives, The United States Senate, and President Barack Obama
My proposal to alter the way the bankruptcy code is designed to give student debtors a chance. Why?
As it stands right now, the ONLY WAY to discharge your student loans (private or federal) is to either DIE or become disabled/unable to work. Unfortunately, neither of these is a great option for the borrower. There is no option out there for those who cannot pay their student loans.
Even if you die or become disabled THIS DOES NOT PROTECT YOUR CO-SIGNERS! If by some miracle a judge grants you a discharge, the banks can turn around and go after your co-signers. This means your parents, friends, aunts, uncles, next-door neighbor, or that generous hobo with amazing credit you met down the street will have YOUR LOANS hanging over their heads. This does not change anything for you because now that the banks have stopped hounding you, your co-signers will start! They did a nice thing for you and looked out for your future; it would be a shame to leave them out to dry.
Benefits of Altering the Bankruptcy Code:
1. Banks, schools, and Sallie Mae will stop their predatory lending strategies because people will file for Chapter 7 bankruptcy if they cannot pay their ridiculous loans with sky-high interest rates. Banks will make safer bets.
2. Banks will be less generous in how much they give out. How is this beneficial?
a. It will force schools to push federal loans on students instead of private ones (the government is much fairer than banks in its lending practices).
b. Incoming students (and their parents) will consider going to more affordable state schools. If you get in to Harvard, BY ALL MEANS go to Harvard--but what is the difference between a $20,000 degree from from Rutgers University and a $200,000 degree at Seton Hall University? Answer: It will take an additional 20 years to pay off your student loans from Seton Hall, if you ever do.
c. Colleges and universities will give out more grants and scholarships to attract students instead of just offering to help them obtain loans.
3. Banks will rely on co-signers less. Firstly, they will be protected when you file Chapter 7. And secondly, there is no longer a guarantee that if you can’t pay someone else must. Ever notice no matter how good your credit is, a bank will make you get a co-signer? It’s a way for it to guarantee payment even if you die.
4. It will provide an option for those people who simply are not able to pay their loans, cannot find jobs, and did not benefit from the $150,000 they spent on that degree in fine art. Many of us know first hand how hopeless and trapped you feels when the choice is between feeding your family and paying your student loans.
Anyone can take a trip to Vegas (or Atlantic City) tomorrow, borrow $100,000 from a casino, gamble it away, and have it discharged by a judge a few months later because he or she lost his or her job. A degenerate or irresponsible gambler can get the protection of the government from the banks; why can't ambitious and responsible students get that same protection?
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