the cost of college tuition spiked after student loans became ineligible for bankruptcy protection some time in the late 70's. Immediately student loan companies sprang up all over the place and colleges could charge what ever they wanted because loan companies would lend the money. If you want to bring college tuition down to reasonable levels, make student loans eligible for bankruptcy and see how fast tuitions drop..
1978 - Bankruptcy Reform Act
Congress
overhauled the Bankruptcy Code and added Section 523(a)(
. Under that section, education loans owed to a governmental unit or a nonprofit institution of higher education were nondischargeable for 5 years from the date the loan entered repayment unless the debtor was experiencing undue hardship.
1979 - Act on August 14th
The
1979 Act did two things. First, it made it so that a student loan made by the government or made under a government-funded program or a nonprofit institution was nondischargeable. This change made sure that a loan made under the Federal Perkins Loan program received discharge protection.
A Perkins Loan is a federal student loan made by a school to a student. The funds for the loan program come from a pool contributed to by both the government and the school.
Before the 1979 Act, it was arguable that a bankruptcy court could decide the section didn't apply to a loan made under the Perkins loan program. This change closed that loophole.
Second, the Act also changed the Bankruptcy Code by extending the 5-year period when the student loan borrower took a deferment or forbearance.
This change made it more difficult to tell when 5 years had passed. No longer could you look at when the last loan entered repayment and add 5 years.
You had to pull the actual payment history for the student debt to see if there were any deferments or forbearances.
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