Possible Change To Bankruptcy Rules For Student Loans
In March 2012, Sen. Dick Durbin called a hearing of the Senate Judiciary Committee to address the issue of student loan debt in the U.S. Scores of graduates are struggling under the weight of crushing student loans, and many cannot see any way out from under them – not even bankruptcy offers relief. Many experts view student loan debt as the next great financial crisis facing the country, and some lawmakers want to take steps to help resolve the issue.
Financial experts have called the amount of student loan debt in the U.S. a potential “debt bomb,” waiting to explode and send the country’s economy into a tailspin. The Federal Reserve Bank of New York reported that the total amount of student loan debt in the U.S. reached $870 billion in 2011. People in the U.S. now owe more in student loan debt than credit card debt or vehicle loans.
Lawmakers are particularly disturbed by the number of borrowers who are in default – particularly at private, for-profit schools. The most recent government statistics show that about 15 percent of students who attend such schools ended up defaulting on their loans in 2009, which is about twice the rate of defaults from those who attend public and non-profit institutions.
Because people cannot discharge student loans in bankruptcy, the burden of these loans can haunt people for decades, causing borrowers to go into a financial tailspin. The damage that defaulting on these loans can do to credit impacts all other aspects of a borrower’s life, making it more difficult to obtain housing, transportation and some jobs.
Fairness for Struggling Students Act
Sen. Dick Durbin proposed the Fairness for Struggling Students Act as early as 2011. The bill would roll back part of the 2005 changes to the bankruptcy code that made it impossible to discharge private student loans in bankruptcy. Private student loan debt would be treated as other unsecured debt such as credit card debt and medical debt under the proposed law.
Students would still have to pay federal student loans. Lawmakers are targeting private student loans because they do not have the same safeguards for borrowers in repayment options such as Income-Based Repayment and hardship deferments.
Consult an Attorney
Many graduates are overwhelmed by the amount of student loan debt they have, especially in a struggling economy. Some are unable to make ends meet because of how much they must repay in loans. While student loans are not currently dischargeable in bankruptcy, those who are struggling because of student loan debt should still talk to an experienced bankruptcy attorney who can discuss all of their debt relief options with them. Contact us today at (303) 438-8477.