Student Loan Debt And Bankruptcy Changes

Student loan debt in the U.S. stands at over $1 trillion; the crushing weight of this debt on people and families has finally prompted possible legislation to ease the restrictions on discharging student loan debt in bankruptcy court. Bankruptcy started out as a venue for people to start over financially, by discharging debts and easing the stress of unpayable monthly bills—student loans included. But in the early 1990s, Congress limited debt discharge to five-year-old loans backed by governmental agencies or issued by non-profits; this was later stretched to seven years, and eventually all student loans were made nondischargeable unless the court — via adversary proceeding — made a finding of of “undue hardship.”Several senators jointly introduced two bills relating to the student loan process—the Fairness for Struggling Students Act of 2013 and the Know Before You Owe Act of 2013—in late January 2013. The second bill increases the disclosures around loans, so young borrowers and their parents will maximize less expensive government loans and other financial aid resources before turning to high interest private loans. And the Fairness act would let borrowers discharge private student loans in bankruptcy, not government subsidized loans. Private student loans (from lenders like Wells Fargo, Chase, Citibank), account for twenty percent of the $1 trillion total burden, and they are made at much higher interest rates, with heavier fees—they look more like credit card bills than equitable loans.Although both of these acts are long overdue, they face an uphill battle. They were previously introduced in the last Congress and died in committee; the private lenders opposed to changing bankruptcy terms are big lobbyists. Many of the bills’ supporters say that labeling the debt as education loans is not a good enough reason to treat them differently from ordinary unsecured signature debt (credit card debt, auto loans, etc) which do get settled in bankruptcy court. One of the bill’s chief sponsors said in the press release, “It’s not only young people facing this crisis, it is parents, siblings and even grandparents who co-signed private loans long ago and are still making payments decades later. It’s time for action. We can no longer sit by while this student debt bomb keeps ticking.”Student loan debt is an unfortunate reality for millions of Americans; the system is in need of an overhaul. Until that happens, if you find yourself underwater, contacting a qualified attorney to review your loans and debts can help you lay out a plan of action. Contact Mike Agruss Law, for a free consultation—founding attorney, Michael Agruss, has settled over 1,500 debt collection harassment cases.