Current Bankruptcy law prevents debtors/clients from discharging any student loans except in cases of EXTREME hardship. Well things are changing!

Democrats Introduce Legislation to Make Private Student Loans Dischargeable in Bankruptcy

Democratic lawmakers introduced legislation yesterday that would allow private student loan borrowers to once again discharge their private student loans in bankruptcy. Since 2005, private student loans have not been dischargeable in bankruptcy. Before changes were made to the bankruptcy code in 2005, only federal student loans and private loans where substantially all of the funds were provided by a nonprofit institution were non-dischargeable in bankruptcy.

Senators Dick Durbin (D-IL), Sheldon Whitehouse (D-RI) and Al Franken (D-MN) cosponsored the legislation in the Senate and Representatives Steve Cohen (D-TN) and Danny Davis (D-IL) cosponsored the legislation in the House. “People who seek higher education to better their futures should not be dissuaded from doing so by the threat of financial ruin,” said Cohen in a press statement. “The bankruptcy system should work as a safety net that allows people to get the education they want with the assurance that, should their finances come under strain by layoffs, accidents, or other unforeseen life events, they will be protected.”

“One of the great inequities in student aid is the inability for private student loan borrowers to receive the same consumer protections that are provided to countless other types of borrowers,” said NASFAA Interim President Joan Crissman. “We support this legislation and urge lawmakers to do likewise.”

The bills in the House and Senate differ slightly. The House bill would return the bankruptcy law to the language that was in place before 2005, with minor tweaks. The Senate bill would allow all private education loans — including nonprofit loans — to be dischargeable in bankruptcy. Before changes were made to the bankruptcy code in 2005, only government issued or guaranteed student loans and private loans where substantially all of the funds were provided by a nonprofit institution were non-dischargeable in bankruptcy. This protection has been in place since 1978 and was intended to safeguard federal investments in higher education, according to lawmakers.

There are very few types of debts that the bankruptcy law subjects to a different standard, allowing for discharge in only the most extreme circumstances. For example, the bankruptcy code makes it especially difficult for people to escape child support responsibilities, overdue taxes, and criminal fines. Privately issued student loans should not be on that list, according to the lawmakers who introduced the bill.

Keep an eye out for these changes; they may help you get out of debt.

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