Some Seek to Revise Bankruptcy Rules to Make it Possible
Broad, sweeping changes were made to federal bankruptcy laws in 2005 with the enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA). Among other things, the act made it nearly impossible for ever-increasing student loan debts to be included in bankruptcy filings. Publicly funded loans (particularly in the form of Stafford and Perkins loans issued by the federal government) have been non-dischargeable debts for years. The 2005 revisions, however, took the much-maligned step of including private educational loans (those from lenders like Sallie Mae, credit unions and profit-making banks), making them one of the few commercial, unsecured debts to be exempt from bankruptcy proceedings.
Due in no small part to the advocacy efforts of affected students and their families, some congressional representatives now support legislation that would reverse the current law's stand on private loans incurred for educational purposes. This action could be vital not only for the survival of America's post-secondary education system, it could make the lives of currently unemployed or underemployed graduates infinitely better.
Why Would it be Subject to Discharge?
With the economy around the world in crisis, national unemployment rates for new grads is nearly 10 percent, and the demographic of 20-24-year-olds are disproportionately being affected by the weak job market - 25 percent of them cannot find work. A sharp uptick in the price of a college education, mainly caused by the loss of state/federal funding for public and private institutions alike, means that more students need help paying for school, and that their debt amounts are rapidly increasing. The fact that the average college graduate has around $24,000 in loan debt (and many postgraduate students - those attending law, medical or other professional schools - can easily accrue $100,000 worth), the inability to work can stunt their personal and professional development, preventing career opportunities and delaying marriage or children for many debt-ridden couples.
Passionate Arguments on Both Sides
On the one hand, there are supporters of the law as it currently stands, those who feel that since public and private student loan debt is incurred voluntarily, recipients should be held solely responsible for repaying it. This side of the debate notes that government loans are essentially backed by funds provided by the taxpayers. They ask "why should I be paying for someone else's education?"
Those in favor of changing the bankruptcy rules also, for the most part, accept the reasoning behind preventing the discharge of government loans, but cannot understand why private loans are not included. These loans are compared to mortgages and credit card debt - this side of the argument asks "since other private debts are dischargeable, why shouldn't these be?"
Regardless of how you feel about how student loans should be treated in a bankruptcy proceeding, if you have questions about the possibility of filing, you should consult an experienced bankruptcy attorney in your area to learn more about your debt relief options.
