Menu
Discharging Student Loans in Bankruptcy May Become Possible Again.
August 9th, 2021
Student loans comprise a disproportionate share of our nation's debt burden. For years, colleges and other educational institutions have made bad lending decisions. More understandably, students and their parents have made bad borrowing decisions. Sometimes this works out as intended. Often, the career does not allow earnings sufficient to repay the loan and live comfortably.
Long ago (until 1976), student loans were dischargeable in bankruptcy just like most other debt. Since then, Congress has narrowed the scope of student loan discharge, initially by making government-backed loans non-dischargeable for five years after entering pay status. Since 2005, with very few exceptions, even private student loans have been completely non-dischargeable.
Hard-working families have been saddled with staggering amounts of debt for which bankruptcy could provide little help. Despite efforts by the bankruptcy bar to change that, correcting legislation went nowhere. But these efforts may yet bear fruit.
There is now hope that discharging student loans in bankruptcy may become possible again. The Senate Fresh Start Through Bankruptcy Act of 2021 would amend the Bankruptcy Code to allow discharge of most student loans after a 10-year waiting period.
That this bill is bipartisan is reason for optimism. Partisanship doomed previous reform efforts to failure. The bill would also require the federal government to repay a portion of the discharged debt to the school.
The bill is far from perfect. A waiting period is reasonable and has precedent, but 10 years is too long. Periods of deferment are not counted. And private student loans are still fully-protected.
Notwithstanding, the Fresh Start bill, if made into law, will offer real hope for many families burdened with insurmountable student debt.
Related Articles
Categories: Other News
