federal loan consolidation Trying to reform system to help students

President Obama wants to reform the student loan system, but even if Congress adopts his plan, 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.

"I think the purpose of bankruptcy is to provide some sense of release for people when they've gotten totally overwhelmed," he says. "It's difficult for me to understand why we can't treat student loans the way we treat some other indebtedness."

Since the law stopped allowing private student loans to be discharged, loans are not any cheaper, says Lauren Asher, acting president of the Institute for College Access and Success. So the argument that reform will cause increased college costs doesn't hold, she says.

Not everyone thinks bankruptcy is the best option.

"I don't support it, but I don't have a solution," says Peter Mazareas, vice chairman of the College Savings Foundation, a non-profit advocacy group for college savings plans.

"It is going to be a generational challenge, in terms of the current students who are maxing out on their loan indebtedness now realizing that they will have to pay $1,500 to $2,000 a month for the next 10 to 15 years," Mazareas says.

It is apparently on many people's minds.

In January, Robert Applebaum, a 35-year-old lawyer, launched a Facebook campaign called Cancel Student Loan Debt to Stimulate the Economy. He was furious that billions of dollars were going to bail out the banking industry, but not to help the middle class.

"I just wanted to get my thoughts out, and I posted it in a Facebook group," he says. "I never had the expectation of more than 10 people reading it."

Now 188,000 people are members of the group.

Applebaum, who still owes $96,000 in student loans, has launched a non-profit organization and website. His aim is to expose inequities and unfairness in the student loan industry: "Students are graduating with incredible amounts of debt, so they are starting out with their hands tied behind their back."