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Student loan debt is the second largest class of consumer debt, yet it’s notoriously difficult to discharge in bankruptcy.
For student debt to be successfully discharged through bankruptcy, “undue hardship” must be proven. Examples of this might include a borrower living in extreme poverty, being unable to work, or having definitive proof that the student loans cannot be repaid despite the borrower’s best efforts.
In short, being granted student loan forgiveness through bankruptcy is possible, but it’s unlikely.
However, the Department of Education recently announced its intent to revisit student loan bankruptcy proceedings. The department hasn’t signaled whether it favors easing “undue hardship” requirements, but consumer advocates say it’s a possibility.
Whether or not any real changes come from this remains to be seen, but the news might be welcomed by many of the 40-plus million student loan borrowers struggling to repay over $1.4 trillion in student loan debt.
LendEDU surveyed 1,001 student debtors currently in repayment to better understand what they think about a more lenient student loan bankruptcy policy.
Full Survey Results
Note: Answer percentages from just those who hold only a bachelor’s degree are highlighted in blue while answer percentages from those who hold a graduate-level degree and used student loans to finance that degree are highlighted in green. Respondents who didn’t graduate from any level of college are highlighted in red.
1. Recently in February, the Department of Education expressed interest in revisiting the rules making student loans eligible for bankruptcy, which is notoriously difficult. A 2005 federal law barred most student loan borrowers from that option unless they could demonstrate that they would suffer “undue hardship” from being forced to pay the loans.
As someone who is currently repaying student loan debt, do you support making it easier for consumers to discharge student loan debt in bankruptcy?
a. 81.12% of respondents answered “Yes.” (74.42%) (84.63%) (80.56%)
b. 18.88% of respondents answered “No.” (25.58%) (15.37%) (19.44%)
2. (Asked only to those who answered “A” to Q1) Which of the following best describes why you support making it easier for consumers to discharge student loan debt in bankruptcy?
a. 43.97% of respondents answered “It is unfair to make people suffer under student loan debt when other forms of debt are more easily dischargeable.”
b. 34.11% of respondents answered “It would free up the economy if more people get out from under high student loan debt.”
c. 17.86% of respondents answered “Many students were not aware of how high the monthly payments would be when they borrowed.”
d. 4.06% of respondents answered “Other.”
3. (Asked only to those who answered “A” to Q1) Which of the following best explains to what degree you support the loosening of requirements to discharge student loan debt in bankruptcy?
a. 55.79% of respondents answered “Student loan debt should be just as easily dischargeable as many other forms of debt in bankruptcy.”
b. 21.92% of respondents answered “Student loan debt should be way easier to discharge in bankruptcy than most other forms of debt.”
c. 12.07% of respondents answered “Only make student loan debt slightly easier to discharge in bankruptcy than by current standards.”
d. 7.51% of respondents answered “Student loan debt should be slightly harder to discharge in bankruptcy than other forms of debt.”
e. 2.71% of respondents answered “Other.”
4. (Asked only to those who answered “B” to Q2) Which of the following best explains why you do not support making it easier for consumers to discharge student loan debt in bankruptcy?
a. 30.16% of respondents answered “This would be unfair to those who have already repaid significant amounts of student loan debt.”
b. 24.87% of respondents answered “There are repayment options already in place, so they should use those options instead.”
c. 14.29% of respondents answered “This would cost taxpayers too much money.”
d. 24.87% of respondents answered “I principally disagree with the idea of bankruptcy.”
e. 5.82% of respondents answered “Other.”
5. Would you consider filing for bankruptcy if the Department of Education were to make student loan debt dischargeable in bankruptcy?
a. 43.26% of respondents answered “Yes.” (32.56%) (51.13%) (40.28%)
b. 26.47% of respondents answered “No.” (37.79%) (25.44%) (22.92%)
c. 30.27% of respondents answered “Unsure.” (29.65%) (23.43%) (36.81%)
6. If student loan debt became dischargeable in bankruptcy, would that change directly impact your sentiment regarding President Trump?
a. 39.56% of respondents answered “Yes, my sentiment would become more positive as a result of the changes.”
b. 55.24% of respondents answered “No, my sentiment would not change as a result of the changes.”
c. 5.19% of respondents answered “Yes, my sentiment would become more negative as a result of the changes.”
7. Generally speaking, do you believe that the Department of Education has your best interest in mind?
a. 23.68% of respondents answered “Yes.” (19.19%) (32.75%) (17.13%)
b. 49.45% of respondents answered “No.” (54.65%) (47.10%) (49.54%)
c. 26.87% of respondents answered “Unsure.” (26.16%) (20.15%) (33.33%)
Observations & Analysis
Advanced Degree Graduates Most Supportive of Looser Bankruptcy Policy, Dropouts Second
In an interesting development, advanced-degree graduates (i.e. doctoral, master’s) showed the most enthusiasm for a more lenient bankruptcy policy for student loan debt, followed by college dropouts.
Respondents who received solely an undergraduate degree were the least supportive of the Department of Education potentially making it easier to discharge student debt in bankruptcy.
Not only did this trend pertain to whether respondents were supportive of such an idea, but also continued when participants were asked if they would consider discharging their student loans through bankruptcy if it was made easier to do so.
Why would those who hold an advanced graduate degree be the most supportive of a policy change that made it easier for student debtors to discharge their loans in bankruptcy? The most likely reason being that they hold the most student loan debt, having taken out loans to fund their graduate-level educations in addition to undergraduate loans.
Advanced degrees often lead to larger salaries in the working world. But perhaps the perpetually rising cost of education and over-saturated job market have mitigated the return on investment of an advanced degree, leaving these respondents with too much debt and few viable options other than bankruptcy.
Respondents who dropped out of college without earning a degree were the second most likely to support a policy that would ease student loan bankruptcy requirements. Despite cutting their student debt burden by dropping out, these poll participants might be having a difficult time earning a steady income without a college degree.
The only cohort where either the plurality or majority of respondents would not consider discharging their student loans through bankruptcy was with those who only received an undergraduate degree. With not as much debt as an advanced degree holder but still having earned a bachelor’s degree, these poll participants may be feeling the most confident in repaying their debt.
Borrowers Want a Level Playing Field When It Comes to Debt and Bankruptcy
Aspiring entrepreneurs can run their small businesses into the ground and still have the ability to walk away through bankruptcy. A lavish spender can rack up $50,000 in credit card debt and may still get saved via bankruptcy.
Most student borrowers just want to be on the same terms as these indebted consumers when it comes to their student loans and discharging them through bankruptcy.
For example, when respondents who would support making it easier to discharge student loans through bankruptcy were asked why they would endorse such a change, the plurality of them answered with “it is unfair to make people suffer under student loan debt when other forms of debt are more easily dischargeable.”
Further, when that same pool of poll participants were asked to clarify to what degree they supporting easing the requirements to discharge student loans through bankruptcy, the majority said it should simply be made just as easily dischargeable as many other forms of debt.
Student debtors are not asking for all too much when it comes to reforming the student loan bankruptcy policy. Quite sensibly, they just want it to be as easy for a student debtor to declare bankruptcy as it currently is for the aforementioned heavy credit card spender or unsuccessful businessman.
Changing the Student Loan Bankruptcy Policy Could Help President Trump
Judging by the results of LendEDU’s survey, trust in the Department of Education among student loan borrowers is low.
In all instances, either the majority of respondents, or close to it, stated that they do not think the Department of Education has their best interests in mind. Respondents with a bachelor’s degree displayed the most disdain toward the department, followed by college dropouts, and finally respondents with an advanced degree.
Easing the student loan bankruptcy policy might be able to help the Department of Education improve its standing among student loan borrowers.
While the majority of student debtors who participated in this survey said their sentiment toward President Trump would not change if he made it easier to discharge student debt through bankruptcy, 39.46 percent said their sentiment would become more positive. Even more striking was that only 5.19 percent of respondents said their feelings toward Trump would become more negative.
All of the data that was featured in this report stems from an online poll commissioned by LendEDU and conducted online by polling company Pollfish. In total, 1,001 U.S. respondents who currently are repaying their student loan debt were surveyed. Respondents also had to have taken out student loan debt to pursue a bachelors degree or higher. These desired respondents were found via screener question and were selected from Pollfish’s online panel of over 100 million users. The survey was conducted over a three-day span, starting on Mar. 10, 2018, and ending on Mar. 12, 2018. All respondents were asked to answer each question truthfully and to the best of their ability.
See more of LendEDU’s Research
Author: Mike Brown