Every year, U.S. students borrow nearly $85 billion a year to pay for college. But, with the credit crunch in our economy, more than 65 private companies have backed out of the student loan market altogether. The lenders that are left are pickier and their loans have become more expensive. Just in the past couple of weeks, the U.S. Congress has taken steps to ease the crunch in time for students to lock in their finances before school starts in the fall.
The new legislation addresses many aspects of the problem. First of all, the amount each student can borrow goes up by $2,000. Freshmen will be able to borrow $5,500 (as opposed to $3,500), sophomores $6,500, and juniors and seniors $7,500. The main idea is to replace more expensive private loans with government loans.
The second set of “breaks” the new bill provides has to do with PLUS loans that parents take out for their children’s college. In the past, the parents needed to start repaying the loan within 90 days of taking it out. Under the new legislation, parents will be allowed to put off making payments until their child is finished with school.
One very, very important part of the new bill is that the U.S. Education Department will have the authority to buy up loans from student lenders, giving those lenders capital to use for new loans!
As I’ve said many times before in this bankruptcy blog, I always try to stay on top of the economic news, so that I can give the most relevant advice to my Indiana bankruptcy clients. Quite often, as I sit down with each client to analyze what the debts are, I find that, along with mortgage loans, credit card debt, and medical bills, college loans play a role in the burdens family members are dealing with. What can create even more hardship in a bankruptcy filing, almost never are student loans discharged by a bankruptcy court.
However, as an attorney who deals with matters of debt every day, I was fascinated to learn that, under this new bill, parents can be up to 180 days late on their mortgage payments, have outstanding medical debts will still be allowed to take out PLUS loans for college. What this says to me is that I will have more time to work with my clients and to plan a strategy which may or may not include filing bankruptcy. Meanwhile, their children will be able to get started on their college education.