• 31
  • October
    2011

Recently, USA Today reported that student loan debt in the US would reach $1 billion before the end of the year - exceeding credit card debt for the first time in history.

Possibly prompted by this frightening statistic - in addition to "Occupy Wall Street" activists calls for student loan reform - President Obama outline a new plan for student loan repayment.

Student Loan Debt in the US

In the past, many believed that obtaining a college degree almost guaranteed a good job; making college a sound investment. However, recent college graduates not only face a decimated job market but owe, on average, $24,000 in student loans. In 2009, the default rate on student loans also rose to 8.8 percent.

Obama's most recent student loan reforms involve a cap of 10 percent of income payments and forgiveness of the loans after 20 years. However, some believe a more appropriate path would be to allow student to discharge certain student loans in bankruptcy, thereby making lenders more cautious when lending to students in the first place.

Student Loans & Bankruptcy

Under US bankruptcy law, government-backed student loans are non-dischargeable, except in rare circumstances. The belief was that students should not be able to reap the benefits of an education just to discharge it later in bankruptcy. However in 2005, the Bankruptcy Reform Bill made private student loans non-dischargeable as well.

Some members of Congress are attempting to make it possible for graduates to declare bankruptcy on private student loans. In an interview with Hotsheet, Rep. Steven Cohen stated, "the industry is giving out loans to people that may not be as creditworthy as they should be - because they know they can't bankrupt them." Cohen continued, "Why should private loans be different than debt you can accumulate with a credit card, or at a casino? There's just no good reason for it... It was a really bad bill if you were an average or even a middle-class American. This was done for the industry, not the student."

Making certain student loans dischargeable may not only help current graduates, but also past graduates that may find their payments impossible to keep up with. Unfortunately these changes may never be implemented, and students may be forced to continue dealing with the current bankruptcy laws - however, an experienced bankruptcy attorney can provide assistance in navigating these complicated bankruptcy laws.