Student Loan Ripple Effect Explored in NYT Article

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The New York Times had an excellent story last month about student loans and their effect on the current economy titled “The Ripple Effects of Rising Student Debt”.

In the piece, writer Phyllis Korkki describes how students and young adults are now ravaged with debt, making them less invested in the economy, less likely to purchase assets and less likely to start business ventures.

Korkki goes into detail about research done on student loans by several entities, including Brent W. Ambrose, a professor of risk management at Pennsylvania State University and a co-author of a preliminary paper on student loan research, along with Larry Cordell and Shuwei Ma of the Federal Reserve Bank of Philadelphia.

The researchers found that when people use up their debt capacity on student loans, they cancel out of other investments. “Given the importance of an entrepreneur’s personal debt capacity in financing a start-up business, student loan debt, which cannot be discharged via bankruptcy, can have lasting effects later in life and may impact the ability of future small-business owners to raise capital,” the researchers said.

Additionally, it was found that student loan debt is affecting homeownership. “According to research by the Federal Reserve Bank of New York, fewer 30-year-olds in general have bought homes since the recession, but the decline has been steeper for people with a history of student loan debt and has continued even as the housing market has recovered,” Korkki wrote.

Korkki also wrote that student loans might affect career choices, as those with outstanding debts are less likely to take public-interest jobs, which are traditionally lower paying.

It should be noted that nationally, student loan debts have raised to about $1.1 trillion, more than three times the $300 billion level seen just a decade ago. In 2013, the average debt for student loan borrowers was $30,000.

What Can I Do If I Cannot Afford to Pay My Student Loans?

It is a myth that you cannot discharge student loans through bankruptcy. A 2012 study showed that in bankruptcy cases, 47 percent of federal student loans were discharged in full, 21 percent resulted in a better payment and 12 percent settled for less than was due.

Although discharging student loan debt can be difficult, you can still free up money for payments by filing for Chapter 7 or Chapter 13 bankruptcy.

An ‘automatic stay’ triggered by a bankruptcy filing puts an end to credit card collection attempts and can end lawsuits brought on by lenders.

Additionally, through a Chapter 7 bankruptcy, you can discharge other debts like medical bills and credit card debt, freeing up money to make student loan payments.

It should be noted that D.C. residents owe nearly twice as much student loan debt as the average American. If you are struggling with student loans, as well as credit card debt and medical bills, contact our Washington DC and Maryland bankruptcy lawyer now for a free consultation.

Law Firm of Kevin D. Judd

Judd’s Judgment: During a Chapter 7 bankruptcy, student loans are considered “senior debts”.


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