Government Organizations Call for Bankruptcy Relief for Student Loans
Home buyers were not the only consumers in Pennsylvania and across the country affected by loose bank lending practices over recent years. Giving out loans too readily has resulted not only in the current foreclosure epidemic but also in a large number of defaulted private student loans, according to the U.S. Department of Education and the Consumer Financial Protection Bureau.
Student Loan Debt
Research from the USDE and the CFPB shows that, between 2004 and 2008, many students borrowed more than they could afford and more than they needed to finance their educations. Student loan debt is now the largest type of consumer debt, at more than a trillion dollars, with over $8.1 billion of the debt in defaulted private student loans. More than 850,000 of these loans are in default.
What makes these student loans especially painful is that a person who is overburdened by debt and decides to pursue bankruptcy usually cannot discharge student loans in bankruptcy. Congress enacted a law in 2005 that makes it nearly impossible to discharge student loan debt, even private loans, in consumer bankruptcy.
Officials Advocate for Bankruptcy Law Change
The CFPB suggests that a change in the bankruptcy code is warranted. Many of the student loan borrowers who are now in trouble were guided by lenders into taking out the private loans, even though cheaper money for education was available in federal loans for which they were eligible. The largest private student loan issuer, Sallie Mae, supports reforming the law to allow the discharge of student loans in bankruptcy when a student has tried for five to seven years to make payments and is still having financial problems.
When debt has become overwhelming, bankruptcy can be a positive and effective solution. Even though student loans may not be dischargeable yet, many other types of debt can be discharged, which can free up more funds to pay down student loan debt. Pennsylvanians who need debt relief should consult a bankruptcy attorney who can assess their situation and help them determine whether bankruptcy is the way for them to obtain a fresh start.