"When I first started practicing bankruptcy law 22 years ago, you could wipe away student loans that were more than 5 years old," says Nora Raum, a bankruptcy attorney in Virginia.
Gradually, bankruptcy law changed. In 1998, Congress ruled that federal student loans were not allowed to be discharged except under the undue hardship provision. In 2005, private loans, which can carry terms up to 25 years, came under the same regulations.
Student loans more than doubled in the past 10 years, from $41 billion to $85 billion, according a 2008 report by the College Board, a non-profit organization of colleges, universities and other educational institutions. During the same period, private loans soared from 7% of student loans to 23%.
"Many students are borrowing from both federal and private loans," says Sandy Baum, senior policy analyst at the College Board. "I think we're going to start to hear a lot about how those people are unemployed and can't pay back those loans. And nobody is going to help them with that."
Federal loans offer financially distressed borrowers options, such as forbearance, extended terms and alternate repayment. But there is no escaping the loan altogether: the federal lender can pursue repayment forever because the debt statute of limitation does not apply.
It does for private loans, but they can be costlier and offer fewer relief options. Lenders often fail to offer relief to the neediest borrowers, says a report issued last month by the National Consumer Law Center.
"I feel like it's a real shame that people like me are coming out of college, weighed down by all this debt," says Austin Light, 24, a journalist for The Mecklenburg Times in Charlotte. He and his wife have $100,000 in student loans. "My dream is to be full-time children's book author and illustrator, and if I wasn't shackled with this debt, I would be pursuing that."
Kim Prewitt of Baltimore is in worse financial distress.
She graduated from law school with about $140,000 in student loan debt and no job offers from her field. To get by, she started working at a bank. But she recently lost that job.
Prewitt is allowed to temporarily stop making payments on her federal loans, although the interest continues to pile up. About one-third of her debt is from private loans, so she must continue making payments.
"I do not know which way to turn," she says. "Even once I have that full-time job so I can make the monthly payments, I am looking at 15 to 30 years to pay this off."
Trying to turn back the clock
President Obama wants to reform the student loan system, but even if his plan is approved by Congress, it won't help the graduates who already are underwater.
Sen. Dick Durbin, D-Ill., says he plans to re-introduce a bill that stayed in the Judiciary Committee last year. It would turn back the 2005 change in bankruptcy law and allow private student loans to be discharged.
"The sky-high interest rates on private loans combined with questionable practices by lenders and the exponential growth of the private student loan market over the past decade have resulted in mountains of debt that can follow students from graduation to the grave," Durbin says.
Rep. Danny Davis, D-Ill., also plans to keep pushing for a change in the bankruptcy law. He introduced a bill that was voted down last year.