Earlier this week in my bankruptcy blog, I wrote about new legislation concerning student loans. I explained that I have a crucial interest in the subject, because, as a bankruptcy lawyer in Indiana, I help clients analyze their debts. Very often, I find that college loans play a role in the burdens families have, along with their mortgage loans, credit card bills, and medical bills.
The new federal legislation is aimed at easing the burden in several ways, including raising the amount each student can borrow, allowing parents to put off making payments on PLUS loans until their child is finished with school, and giving the U.S. Education Department authority to buy up loans from student lenders, so that those lenders will have capital to offer new loans.
And that brings me to today’s subject – student loans here in Indiana. As of the start of the next academic year, Indiana University Bloomington campus and IUPUI will each go back to getting loans directly from the federal government, which is what they used to do prior to 2004. (After 2004, private lenders issuing federally backed loans dominated the student loan market.) But, this year, more than 50 lenders announced they will stop making private loans because of subsidy cuts and because of how difficult it is to sell student loan-backed securities.
The IUPUI and Bloomington IU decisions about student loans are of special interest to me, because I have law offices in Indianapolis and in Bloomington. I know that this calendar year, more than one hundred schools around the country have applied to join the federal government’s Direct Loan Program, bringing the total number to 1500. Twice that number of schools are still using the Federal Family Education Loan program, the one using private loans, but I expect that ratio to change as other Indiana schools convert to the Direct Loan program.
There’s another piece of the problem that directly relates to my work as a consumer bankruptcy specialist. Sallie Mae, one of the largest private lenders issuing federally backed private loans, employs more than 3000 workers in Indiana. Sallie Mae itself has reported losses in the first quarter of the year, and says it isn’t able to make profitable loans at this time. Because my ear is always to the ground when it comes to employment here in our state, I worry that might mean job losses, one of three primary causes of bankruptcy.
Funny, you might think – a bankruptcy attorney worried about unemployment causing bankruptcy? As a matter of fact, yes. Doctors make their living trying to heal the sick, but they don’t want people to get sick! The Indiana bankruptcy laws (in the writing of which I played an important role) are designed as a safety net to help people overwhelmed with debt by circumstances beyond their control. We the people (and I mean all of us), are ultimately the ones providing that safety net, which can function only when the majority of the people as a group has the financial strength to support it.