Criticism Of US Student Loan Programs

People love to criticize everything and everyone in this day and age. Why would a student loan program be any different? There are not too many bad things that you can criticize it for, but there is one thing that sticks out the most. Many people concerned themselves with the passage of the bankruptcy reform bill of 2005. Because bankruptcy with a showing of undue hardship is the cause for a discharge of a student loan, the changes that were made for the qualifications of a person to be able to declare bankruptcy caused a stir among many people. Student loans now are not completely wiped clean during the bankruptcy period of time. This then means that the lender is provided with a risk free loan, but there was still an average and continuous interest rate of seven percent over one year, which is rather high.

The main reason for the bankruptcy reform bill was to restrict the possibilities of someone declaring bankruptcy. This was because, bankruptcy fraud was widespread. Critics were concerned with the strict means test that would make debtors file under Chapter 13 instead of Chapter 7. Under Chapter 13, only a percentage of your debts had to be paid over a three to five year time period. Filing under Chapter 7 would mean that debtors only had to pay their debts out of their existing assets. So obviously filing under Chapter 7 was better for people to do, whether or not they were filing fraudulently. Critics also had a problem with the way the bill gave provisions in favor of the lending companies. So, in the end, if you were able to declare bankruptcy and have your loan discharged, there was a possibility that you would still have to pay a percentage of the loan with interest over a three to five year period of time, instead of just paying it out of your existing assets. This is what was criticized the most about United States student loan programs.