Discharging Student Loan Debt In Bankruptcy

: Chris Lee Law Firm

  Filed under: Student Loans

student loan debtSince the changes to the bankruptcy code in 2005, student loan debts have been largely ineligible for a discharge in bankruptcy. While there is some push to reinstate these laws, many are concerned about the message it would send. In compromise, a new bill is asking for the eligibility of only privately held loans to be included in a bankruptcy discharge.

Opening A Door

For months a handful of politicians have been fighting to pass a bill to allow student loan borrowers to refinance their loans to a lower interest rate. Struck down just last week, a new bill is circling Washington in hopes of continuing the fight against student loan debt. Senator Tom Harkin submitted a bill that would allow for private student loans to be eligible for discharge in bankruptcy.

Arguing that student loan debts are strapping too many young people into payments they can’t afford, the bill would allow for the bankruptcy option for private loans. Critics of the plan say approving the discharge of student loans inĀ  bankruptcy would have a slippery slope into dodging obligations from over-borrowing, the fact is that only a small portion of the total student loan debt is held privately. Only about 15% of the entire student loan debt market is held privately, meaning 85% of the market is still owned by the Department of Education, which would also remain ineligible for a bankruptcy discharge.

The jury on this bill is still out, but the President is still working towards implementing more measures that could help millions of borrowers out of a financial hardship.

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