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Senators propose student debt bankruptcy reform legislation

Calling it a "chance to right a wrong," three U.S. senators proposed new legislation last week aimed at reversing a prior legal change that makes it all but impossible for student debtors to rid themselves of private loan obligations in bankruptcy.

Federal student loans have been immune from discharge in bankruptcy for nearly 35 years, but many lawmakers and consumer advocates say that a similar rationale for giving private student loans equally privileged bankruptcy treatment lacks. Government loans are made via taxpayers' money and offer far more favorable repayment terms, interest rates and forbearance options than those customarily existing in private loan agreements.

Notwithstanding the disparities, Congress enacted law in 2005 that put private loans on par with government loans by making them virtually impossible - absent a demonstrated and extreme hardship - to liquidate through bankruptcy.

The new bill offered up in the Senate - entitled The Fairness for Struggling Students Act - would restore current law by putting back into effect provisions that were in force prior to 2005. It would once again make private loans dischargeable in bankruptcy, similarly to other types of privately held debt.

The legislation has many and diverse advocates, including private lender Sallie Mae, which supports discharge "for those who have made a good faith effort to repay their student loans - and still experience financial difficulty."

Student loans trump even credit card loans as the largest form of consumer debt nationally, with outstanding obligations currently being in excess of $1 trillion.

Source: Huffington Post, "Fairness for Struggling Students Act would reform private student loan bankruptcy rules," Tyler Kingkade, Jan. 24, 2013

  • A bankruptcy attorney with proven experience assisting student debtors can respond to questions and concerns regarding student loans and provide staunch representation to any client needing legal assistance. For more information, please visit our Miami, Florida, Bankruptcy page.

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