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Bankruptcy as an option for student loans?

On Behalf of | Nov 7, 2022 | Bankruptcy Reform

Bankruptcy represents the opportunity for a fresh start for those who cannot get out from under crushing, out-of-control debts. Countless phone calls from debtors fill voicemail boxes can end the moment a consumer files for Chapter 7 or Chapter 13.

The student loan crisis has had its share of banner headlines. Yet, since 2005, the problem in the search for a solution has continued. Private and government-issued/protected loans have primarily been non-dischargeable since 2005. However, pending legislation in the US House and Senate would provide a path to discharge private loans.

Conditional agreement

Sallie Mae, a prominent private lender, purportedly agrees with the possible changes. However, they are asking for a waiting period before students attempt to discharge debts where good faith efforts to pay would take place.

Lenders fear that passage of the bill would lead to a future of fewer loans being available, citing the lack of “creditworthiness” of students who are borrowing large sums of money with little to no credit history. Pursuing private loans could lead to even more obstacles by lenders, including a mandated co-signer.

The worst case scenario is students filing for bankruptcy following graduation in massive numbers, a move that would likely increase borrowing costs in the future. However, the higher costs of loans and the lower number of lenders underwriting them could force for-profit schools to either reduce tuition expenses or outright shutter their operations.

Student loans and the option of debt discharge remain uncertain. In spite of pending legislation or existing laws, out-of-control finances, regardless of the source, require the help of an experienced and skilled bankruptcy attorney.


Kingcade & Garcia | A Miami Law Firm