Could student loans be dispelled through personal bankruptcy?

Millions of Americans are struggling with major financial issues, and unpaid student loan debt is a major part of the problem for many. Making the decision to attend a Florida university is often based at least partly on the prospect of improving one’s ultimate earning potential, but too many college graduates are learning the hard way that employment factors and staggering student loan costs are keeping them financially strained.

The chairman of the Senate panel on education is introducing a piece of legislation that many are regarding as a glimpse at a larger, more sweeping policy on federal higher education. In addition to holding higher education establishments accountable for the employment and dropout rates of their students, the proposed bill would make college more affordable and allow some student loans to be discharged through Chapter 13 and Chapter 7 bankruptcy.

The banking industry is largely against the proposed measure since it would affect private lenders such as Wells Fargo & Co. and Sallie Mae. By allowing student loans acquired through private lenders to be included in personal bankruptcies, some claim that interest rates would be negatively affected. It’s estimated that up to 15 percent of the nation’s total unpaid student debt is owed to private lenders.

Supporters for the measure argue that many people that carry significant amounts of student loans are never able to pay them back under current conditions. Right now, people that file for personal bankruptcy are able to come out from under several other private loans.

While student loans are not yet eligible to be included in most personal bankruptcies, anyone that has concerns about their financial situation can meet with a lawyer to discuss their legal options. Filing for bankruptcy can be an effective way to achieve financial stability in many cases.

Source: The Wall Street Journal, “Harkin Opens Door To Bankruptcy Option for Student Loans,” Josh Mitchell, June 25, 2014