Students Might be Able to Get Out of Loan Payments

(U-WIRE) LOS ANGELES – The U.S. Supreme Court has decided to hear a case regarding whether states should be held responsible for student loans that cannot be paid back to state agencies. The case involves Pamela Hood, a Tennessee woman who took out a college loan from Sallie Mae that was guaranteed by a state agency. In 1999, Hood filed for bankruptcy, claiming she could not cover her debts — including about $4,200 worth of student loans. But the state appealed, claiming that it should not be held responsible for the payment because states are not required under the Constitution to defend in bankruptcy court their right to collect student loans they have guaranteed. The appeal is backed by 47 other states. A 1976 federal law said students could not seek forgiveness of their debt in a regular bankruptcy case, but allowed students to seek relief from state-guaranteed loans by filing cases of “undue hardship” against a loan-backing state agency, however. If the Supreme Court rules in favor of Hood, students could declare bankruptcy in order to be relieved from their student loan payments. Catherine Thomas, director of financial aid, said that this could create problems for students. “Student loans have so many advantages that it would jeopardize loans for the greatest number of students if those few who get into trouble were to be able to walk away from their loans,” she said. “Lenders and the federal government would just have to increase the costs to all students to pay for those who default or declare bankruptcy.” Thomas said that students could virtually always make payment arrangements that fit their circumstances. “This means that a student loan borrower with very low income would never have to make payments,” she said. The nationwide rate for non-payment of student loans has dropped to an all time low of 5.4 percent, The Boston Globe reported. This is about one in every 20 college students who take out loans, however.Some students have questions about what implications this could have. “I don’t know anyone who doesn’t have at least a little bit of money given to them from the state to help them out,” said Paul Shockley, a sophomore majoring in cinema-television critical studies. “I don’t know how this will affect all the students on financial aid, but it seems like it might make it more difficult to get loans, which would be really hard on some kids.” Neha Kashyap, a sophomore majoring in broadcast journalism, disagreed. “It might make students work harder once they get out of college.” Shockley and Kashyap both said, however, that ultimately they and most students would not be affected by the decision, because it involves also a declaration of bankruptcy. “I plan to pay my debts off right away after school,” Kashyap said.