Student Loans and Bankruptcy Discharge


In the past, student loans could be discharged by bankruptcy but not anymore. Since 1976, the bankruptcy code was changed to disallow student loans from being discharged. Recent statistics have shown that the amount of student loans outstanding nationwide exceeds $1 trillion and the figure shows no sign of abating due to the ever-increasing cost of education. In fact, since 2006 the amount of student loans increased by a significant 75% and now amounts to even more than credit card debts. Could this massive debt trigger a financial meltdown as bad as or worse than the sub-prime mortgage crisis a few years ago?

In view of this, the National Association for Consumer Bankruptcy Attorneys (NACBA) has been lobbying for the bankruptcy code to be revised to allow for student loans to be discharged. These student loans are privately funded loans that have no limits on interest fees or rates. The NACBA says that student loan interest rates have increased significantly in recent years.

On top of that, landing a job these days is difficult due to the bad economy. People are getting laid off as companies downsize to cut costs, which makes finding a job for fresh graduates all the more difficult. For a young worker fresh out of college and venturing into the job market laden with a hefty student loan to repay, getting a job is crucial. The longer he or she takes to land a job, the more money is owed on the loan. It is not only the fresh graduate that is affected by student loans, but often the parents also. Parents who signed as co-guarantors for the loan are also liable to repay the loan. The NACBA reports that 81% of those filing for bankruptcy protection also struggle with student loan debt.

There are two bills in Congress now that may have a direct effect on the dischargeability of student loans through bankruptcy. They are the House’s Private Student Loan Bankruptcy Fairness Act and the Senate’s Fairness for Struggling Students Act. If Congress passes these laws, at least student loans from private vendors may be eligible for discharge.

If you are struggling with financial problems, consider filing a bankruptcy petition to free yourself from your debts. Call us at (813) 200 4133 for a free consultation on bankruptcy.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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