by Anna Roy
Staff Writer
Changes in our nation’s bankruptcy laws will affect many Americans, particularly college students.
On March 15 of this year, the Senate passed S 420, a bill that will ultimately restructure bankruptcy laws nationally. The bill will require a person declaring bankruptcy to take what is called a ‘means test’ beforehand.
This test will determine whether or not a person can afford to pay 25 percent of their debts. If they can, then they must enter a repayment schedule over a period of five years.
How does this affect college students? A study by the Department of Education found that students attending private schools borrow an average of $14,300 over four years.
Currently, the law dictates that students begin paying their loans six months after graduation. Many schools and banks also require that students take a loan entrance and an exit exam ensuring that they know the stipulations of their student loans.
Nonetheless, the rate of personal bankruptcies filed from people under 25 has risen from one to five percent in just five years, and according to the American Bankruptcy Institute, the percentage is still increasing. This year alone, 150,000 people under the age of 25 filed for bankruptcy.
Schools that can afford to eliminate student loans have begun to do so.
In efforts to curb student debt accumulation, Princeton University announced that beginning next fall, student loans will become entirely replaced with grants and work study. Princeton, however, enjoys the largest endowment per student from all Ivy League Schools. Few schools can afford a measure of this extent.
It was not until the 90s that credit-card companies began targeting college students, eliminating the stipulation for a co-signer.
Today’s credit cards offer a low-interest rate at the beginning and then start charging much higher interest rates as time goes on. In addition, some charge an annual fee.
University of La Verne junior Frank Tolentino has a total of six credit cards, including a Discover, two Visa’s (with two different credit lines), Macy’s Card, Best Buy Card and a Circuit City Card.
“I will be graduating with $20,000 in student loan debts and $8,000 in credit card debts,” he said.
His purchases include going out to dinner, car payments, clothing, and home furnishings.
“When you’re in college it’s tempting because you want all of these different things, so you get a card to pay for them,” said Tolentino.
“The thing that got me into it [debt] was when I first moved out on my own, I had to buy a television, couch, table, and all of that,” he said.
Also, Tolentino has recently purchased a new car.
“At the time, I had a really good job, and I realized that if I paid $200 more per month I could have a nicer car.” Currently he is not working, but does plan to go back to work in the summer.
Students like Tolentino, who might have considered declaring bankruptcy before, may not be able to now. The new bill will force more people to pay off their debts, if they have just 25 percent of the assets too.
In the March 26 issue of TIME magazine, journalist Adam Zagorin wrote an article on the passage of the bill.
“When credit-card companies want something really badly, what do they do? They pay cash, of course. And that’s just what they did, along with a lot of banks, retailers and auto lenders who contributed millions of dollars to key members of Congress as well as to President George W. Bush’s campaign and inaugural festivities,” he wrote.
The article also asserts that President Bush’s largest campaign contributor was MBNA, who, according to its own website, is “the world’s largest independent credit card issuer, with managed loans of $88.8 billion.”
Opponents to the bill feel that credit card companies are at fault for extending credit to so many people.
Last year alone, credit card companies extended credit to over 3.3 billion persons. In recent years, they have begun to target people as young as 14 for credit cards.
Another group that will be affected by the bill are single, female headed households, who are the fastest growing group of people entering bankruptcy.
Many women’s organizations, consumer rights groups and academics have asserted that this bill will make it harder on them because now alimony and child support payments will become accessible to credit-card companies.
If the means test determines that a person has the ability to pay off 25 percent of their debt, then that money will be used to do so.
Senator Paul Wellstone from Minnesota went on record, stating that, “This bill is a wish list for the credit card industry and a nightmare for vulnerable families.”
Small businesses are another sector that could be affected by the bill.
If small businesses do not meet certain deadlines for having their finances in order, they will face liquidation. Economists believe that this will in turn lead to problems like unemployment.
To curb credit card debt, students are advised by financial specialists to take credit cards with long-term, low interest rates and those without annual fees.
Another tip is to limit spending to only the essentials and pay as much of their monthly credit-card payment as possible on time, in an effort to eliminate paying large amounts of interest. A sure way to avoid having credit card debt is to not own one at all.
