Push for Student Loans to Be Discharged in Bankruptcy

If you are struggling with student loan debt you are not alone. An estimated 37 million Americans have debt from student loans totaling $870 billion, according to the Federal Reserve Bank of New York. The average balance for an individual is about $23,000. When this amount of debt becomes unmanageable, borrowers often struggle with where to turn.

Although most types of debt, including medical bills, mortgages, car loans and credit cards, are allowed to be discharged in bankruptcy, student loans generally cannot be discharged unless there has been a severe hardship. This applies to both federal student loans and loans from private lenders.

Private loans in particular tend to cause borrowers financial troubles since they frequently don't offer the same protections as federal loans. Private loans usually have higher interest rates which can shoot up quickly. Lenders, knowing borrowers don't have the option of filing for bankruptcy, may also be more unwilling to arrange payment plans for struggling borrowers.

Senator Richard Durbin (D-Illinois) is currently proposing that the 2005 law which made private loans non-dischargeable in bankruptcy be overturned. This would be welcome news for the estimated 5.4 million borrowers which have overdue student loan accounts. It may, however, be difficult to pass the bill in an election year with a divided Congress.

Filing for bankruptcy may still offer some financial relief for those struggling with student debt. By eliminating credit card debts and other financial obligations in bankruptcy, you may have more funds available for student loan payments.

Source: Pioneer Press, Student loans stick- even in bankruptcy, Justin Pope, 28 April 2012