Tuesday, January 29, 2013

WSJ: Senators Propose Bankruptcy Option for Private Student Loans

Good news for those struggling with private student loan repayment. In 2012, Americans owed more on their student loans than automobile and credit card debt. Private student loans, in particular, have fewer income-based repayment and loan forgiveness options. The Huffington Post covered the growing private student loan crisis last year. Because of a 2005 reform law, private student loans cannot be discharged in bankruptcy, except in extremely rare cases. I hope this piece of legislation gains traction in Congress. (Subscription required to read the entire article).

Senate Democrats are moving to make it easier for consumers to expunge some student debt in bankruptcy, but the proposal faces uncertain odds on Capitol Hill.

The proposal, unveiled Wednesday by Sen. Dick Durbin, the Senate’s No. 2 Democrat, would target student loans issued by private lenders such as SLM Corp.’s Sallie Mae, Wells Fargo Corp. and Discover Financial Services. The bill would not apply to federal education loans, which comprise more than 80% of the roughly $1 trillion in outstanding student debt in the U.S.

Federal law prohibits, except in rare cases, private or federal student loans from being discharged in bankruptcy court. Consumer advocates say that has prevented many borrowers from unloading student debt even when the amount owed is so high there is little hope for them to repay. Most other types of consumer debt, including money owned on mortgages, credit cards and auto loans, can be discharged in bankruptcy.

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