Individuals experience many challenges when they are trying to discharge student loans in bankruptcy. To successfully get their school loans discharged, people are obliged by law to prove that they lack financial ability to pay their debts. They are supposed to show that payment of school loans will cause undue hardship to loan holders and their dependants. The borrowers also have to indicate that they have made a good faith effort to ensure full payment of the loan (White 2). Discharging student loans gives students in bankruptcy a chance to become productive members of the society through pursuing their professional goals.
Discharging the student loans in bankruptcy will encourage many students whose parents or guardians are unable to meet their education needs to enroll in schools and colleges. Many young people from humble backgrounds develop a fear of applying for school loans due to increased fear of failure to pay. The effects of discharging the student loans in bankruptcy will be that there will be a high number of learned people in the society. Consequently, the crime level will decrease since the majority of young and jobless young people will get a chance of attending to school. Although attending to school does not guarantee good employment opportunities, learned young people would gain knowledge and come up with legitimate methods of generating income. The effects will be an increment in the number of unemployed citizens. High level of unemployment affects economy in that it increases the dependency rate and lowers the level of the investments in the economy (Spurr 28).
Allowing discharge of school loans in bankruptcy will help the loan holders to plan their future carefully. The holders will optimize the minimal revenue that they generate either from business or income from employment. They will learn to increase their savings and improve their credit rating. Allowing discharging school loans will help in lowering the poverty level in the economy by eliminating debts burden to the less fortunate citizens (White 15).
Supporters of disallowing the discharge of school loans in bankruptcy argue that it creates a massive national debt. It will adversely affect the economy since it will increase provisions of bad debts. It will also discourage the majority of young people from working hard to meet their debts obligations. Allowing discharge of school loans in bankruptcy will also discourage the culture of saving and encourage reckless spending among the young people. Students will not be caring about their debts since they are aware that it will be eliminated from their debts obligation by applying for bankruptcy. Increased reckless spender cause an increase in the number of defaulters in the economy (Spurr 37).
Filing school loans for bankruptcy can increase the number of people suffering from mental and physical problems in the society. Bankruptcy is linked with failure. Individuals who file could develop a feeling of inadequacy, stress and distress. It can hence increase medical expenses. It can as well create new lending problems. Financial institutions and other lenders will be keen when extending financial assistance. Individuals might as well be charged high interests loan to cater for their credit rating risks (White 18).
Individuals should conduct an honest assessment of their ability to pay their school debt obligations and be allowed to apply for bankruptcy if they show that debts payment will result in undue hardships. Bankruptcy should not be treated as an admittance of failure or recklessness. It is a chance for the debtors to rebuild their credit and restructure their finances by starting afresh.Thus, discharging student loans in bankruptcy will help students to overcome economic hardships and have access to higher education. As earning power depends on the level of education, an educated populace can strengthen the country’s economy.
Spurr, Stephen J. “The Effects of a Statute (BAPCPA) Designed to Make It More Difficult for People to File for Bankruptcy.” The American Bankruptcy Law Journal (2013), 87,pp. 27- 47.
White, Michelle J. “Bankruptcy: Past Puzzles, Recent Reforms, and the Mortgage Crisis.” American Law & Economics Review 11.2 (2009): pp. 1-23. .