Why Won’t Bankruptcy Erase Student Loan Debt?

: Chris Lee Law Firm

  Filed under: Student Loans

With student loans from federal and private lenders topping a whopping $1 trillion nationwide, many are asking why there isn’t any form of relief for student loan debt. Unlike credit cards, mortgages, and owed taxes, there is no immediate respite for those struggling to pay back their student loan debt. Even declaring bankruptcy, which would eliminate everything owed to lenders, has an exception for student loans. Why is this?

Understanding the Conundrum

The key problem in the national student loan debt crisis is the increasing cost of higher education and decreasing opportunities to be able to pay that education cost back. Though the US economy is recovering, the jobs and pay rates aren’t growing at the same rate as educational costs.

Before 1976, student loan debt was dischargeable under bankruptcy. A change in laws over a series of years has made it more difficult to have student loan debt dissolved in bankruptcy. Lawmakers and many private citizens fear that allowing student loan debt to be completely wiped under bankruptcy would lead to people trying to take advantage of the system. If student loan debt could be forgiven, some fear that many could just go to college, collect bills for their education that they couldn’t afford, only to discharge the debt later. Thus, the main reason behind this strange legal loophole is the prevention of consumer abuse.

Student Loan Debt Relief

Just as educational loans are an exception in bankruptcy, there is one exception to that exception. If a borrower can prove that being forced to repay their student loan debt would cause “undue hardship,” then bankruptcy could be used to discharge the amount owed. However, proving “undue hardship” is extremely difficult in these cases, unless you have a disability. Regardless of how difficult it is, it’s the only option available until the law is revised again. If you’re suffering under unbearable student loan debt, the guidance of a Fort Worth bankruptcy attorney or money management counselor would be a great place to start!


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