Understanding Bankruptcy Law and Student Loans

student loans and bankruptcy law

Will the bankruptcy laws change student loans?

A change in the Florida bankruptcy law may mean there is a good chance student loans could be considered forgivable as part of your bankruptcy in the future. Three U.S. senators have banded together to present a change of the 2005 bankruptcy laws, to make private student loans once again dischargeable when filing for bankruptcy.  The way the law stands today, if you have any kind of student loan, public or private, that debt will continue on after your bankruptcy leaving many students at the mercy of a loan they cannot renegotiate and often at abnormally high interest rates.

Changes in Bankruptcy Law

This is why there is a need, and has been for years, to see a legal solution to this in the form of some type of bankruptcy reform for student loans. This proposal may go a long way towards solving one of the largest debt problems the country has. The proposal is called The Fairness for Struggling Students Act of 2013. With Senator Durbin shepherding it through Congress many hope this will be the year that the status of student loans in a bankruptcy filing is changed.

The Largest Consumer Debt

With over $1 trillion annually in student debt they are by far the largest single category of personal debt and yet are also the only type of consumer debt that is not eligible for bankruptcy. The bill is concerned with private student loans, which are the hardest to repay with their higher interest rates. They also do not offer an income-based payment plan like the government sponsored loans. Both of these conditions make them much more difficult to pay off, leaving many students feeling like indentured servants to their student loans for many years in the future.

This is the very reason that the senators are looking to reform the rules regarding bankruptcy and student loans. A recent release from Senator Durbin’s office stated his reasoning:

“In 2005, the law was unjustifiably changed to give private student loans the same privileged bankruptcy treatment as government loans…Today’s bill would restore the bankruptcy law, as it pertains to private student loans, to the language that was in place before 2005 so that privately issued student loans will once again be dischargeable in bankruptcy like nearly all other forms of private debt.”

Bill has Gained Support

The bill has been several years in the creation and it should not be surprising that it has garnered some support amongst student organizations. Additionally, there are some pretty heavy guns supporting this bill including:

  • The American Association of University Women
  • The Consumer Financial Protection Bureau
  • The U.S. Department of Education
  • FinAid.org founder Mark Kantrowitz
  • The Institute for College Access and Success

Even an institution that is one of the major student loan players in the country, Sallie Mae, has gone on record as being behind this latest bill to private student loan bankruptcy reform. The organization would like to see reform that would allow students who have shown some good faith effort within the initial five to seven year period but are unable to discharge the debt be eligible for having those loans become part of their bankruptcy filing process anywhere in the country including here in Jacksonville Florida.

Filing for Bankruptcy with Student Loans

If you are in financial debt, especially with student loans and are considering filing for bankruptcy, find out what all of your options are first. Private and government loans are handled differently and there may be other solutions to your situation. Find out the facts first. Contact our offices for your free consultation to discuss your individual situation and discover if a bankruptcy is the best solution for you.