(Source: Katie Roenigk, Moscow-Pullman Daily News, Moscow, Idaho) – Bankruptcy attorneys are noticing a trend among their clients: Many of them have unpaid student loans.
In January, the National Association of Consumer Bankruptcy Attorneys polled 860 of its members through an online survey. Results were released Tuesday, with more than 80 percent of participants saying the number of potential clients with student loan debt has increased “significantly” or “somewhat” in the past three or four years.
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On the Palouse, bankruptcy attorney Ray Barker agreed with the results. He said his client load lately has included more students who are having trouble paying off the loans they took out to go to school.
“I am dealing with a lot of student loans (that) are way, way in default,” Barker said Tuesday.
Those clients don’t have many options, he explained, as bankruptcy can only discharge student loans based on “undue hardship,” which constitutes more than being out of work or underpaid.
“Undue hardship means you’re incapable of being employed and probably will never be employed,” Barker said.
In the NACBA report, 95 percent of Barker’s colleagues surveyed nationwide said few student loan debtors are seen as having any chance of obtaining a discharge as a result of undue hardship.
Other programs are available federally, however, that allow students to pay off their loans gradually based on the amount of money they make, and Barker said those can be helpful in some cases. Greg Rauch, of Magyar, Rauch and Thie, PLLC in Moscow, recommended students who are struggling with loan repayment do their own research into the possibilities.
“You can discharge it through bankruptcy, but it’s very difficult to do,” Rauch said. “But if the students themselves look into the programs for repayment, they’re pretty liberal.”
He has not noticed an increase in student loan defaults at his practice, but Rauch said the issue has existed since the nation’s economy began to struggle several years ago.
“I wouldn’t say it’s growing; I would say it’s steady,” Rauch said. “But is it a problem? Absolutely.”
He said students loans should come with safeguards that protect young people from overspending.
“Any time you’re in the situation where these kids get money with no accountability you’re going to have them running up large amounts of student loan debt,” Rauch said. “When financial aid hits you know the Garden (Lounge) downtown is packed, and so are the restaurants. It’s openly good for Moscow’s economy, but at the same time these kids have to pay that back.”
Patty Winder, associate director of Washington State University’s Office of Financial Aid and Scholarship, said employees offer workshops to help students make informed decisions about finances in order to avoid issues with loan repayment. The system seems to work, she said.
“We feel that our students do a very good job of repaying their loan debt,” Winder said. “Loans are a reality nowadays for college students, but I think our students in particular borrow wisely and conservatively.”
The average undergraduate student at WSU leaves with a total of $20,500 in loans, she said, adding that the number is well below the national average. According to the NACBA, college seniors who graduated with student loans in 2010 owed an average of $25,250, up 5 percent from the previous year.
At the University of Idaho, seniors leave with an average of $24,000 in debt according to Student Financial Aid Services Director Daniel Davenport, who said he hasn’t noticed a “significant change” in default rates through his office. He said his staff works with students to ensure graduates have a plan to pay off their loans, often by enrolling in a repayment option based on income or consolidating loans so they can be paid off more efficiently.
Davenport and Winder both said it is important to stay in touch with lenders, who are more likely to be flexible when they know their client is cooperative.
“Students have several options, and communication is the best key,” Winder said.
Crisis?
Along with its survey results, the NACBA published a paper Tuesday titled “Student Loan ‘Debt Bomb’: America’s Next Mortgage-Style Economic Crisis,” in which the increase in student loan defaults is compared to the recent “devastating” home mortgage crisis that threatened the nation’s economy. Barker said he does not think the student loan issue could lead to a problem of that magnitude, however.
“It can have an effect on the economy, but not nearly on that scale,” he said.
Rauch said he could understand the NACBA’s comparison, but in his opinion the overarching problem lies with the economy as a whole.
“It’s not necessarily just the financial aid,” Rauch said. “It’s any kind of debt you could possibly imagine, from increasing credit card debt to student loans to house payments. All of that is going to be a problem when people can’t pay that back.”
For more information on the survey visit nacba.org.
Katie Roenigk can be reached at (208) 882-5561, ext. 301, or by email to kroenigk@dnews.com.
Source: Katie Roenigk, Moscow-Pullman Daily News, Moscow, Idaho
