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Should You Be Able To Get Rid of Student Loans Through Bankruptcy?

Find out if student loans are discharegable in bankruptcy

The answer to this question is probably “Yes.”  You should be able to discharge student loans in bankruptcy during most situations.    However, under the current law you cannot discharge student loans in bankruptcy with almost no exceptions.  Many strongly argue that the legislation which culminated in the complete banning of student loan bankruptcy in 2005 is immoral and biased.  The legislation was clearly motivated by private business interests.  It has created a “student loan debt crisis,” a new hot topic of interest and debate.   Some say this “crisis” is next “melting point” our economy will face.  

But, more importantly, what about the moral perspective?   From a moral perspective, you SHOULD be able to discharge student loans in bankruptcy. But why?

Student Loan Lending is Oppressive and Should Be Against Public Policy

Student loan lending is clearly oppressive and should be against public policy.  The student loan industry has quickly transformed education into an “industry” as well.  Higher education should never be allowed to grow into a profit-driven industry.  Education should be affordable or free: it should always be about the students or society as a whole.  Higher education in the past was promoted and controlled by churches, charities, and true non-for-profit organizations.  Higher education should be a mainstay of freedom.   Higher education should remain untainted by corporate greed and economic oppression.

Higher education has grown into a monster funded by never ending student loan funding.   Astronomical building projects, sports programs, and other non-necessary ventures dominate the higher education world.   This money-raking beast has replaced previous higher education system.  The old system was focused on the students, the welfare of society, and higher ideals.   

Students are charged astronomical rates to attend classes.  These 18-19 year old students are told not to worry: just sign the loans documents.   However, most of these students have never had a job or a loan in the past. The students have no concept of the oppressive debts they quickly assign to themselves so early in life.    

What do the students get in return?  Many times absolutely nothing.  In fact, many places of “higher” education are so devoted to a profit model that they accept almost anyone with no regard to their drop-out rates.  Other schools are slightly more dignified, but almost the entire system has been corrupted by this student loan legislation.   A good part of these problems can be eliminated over time with a single law change: the full discharge of student loans in bankruptcy. 

Falsified claims of “immoral” bankruptcy filings were the Trojan Horse

The Trojan Horse was simple: some people were filing bankruptcy to immorally discharge their student loans.   However, these minor immoral occurrences were showcased intentionally to get law changes passed that were clearly against common sense public policy.   Student loans became the norm: this far greater evil quickly seeped into our entire higher education system. 

By intention, the real question at hand was improperly phrased: should the government allow and support a large student loan industry?  By progressively disallowing the discharge of student loans in bankruptcy, two new industries for profit developed.  The “big” education and the “big” student loan industries. Both of these industries are very bad for society.  They should have never been allowed to develop.  Education was once considered a “sacred” institution.   Can such a claim of sacredness still apply after the changes “big” business has made?

Student Loans are Not Dischargeable in Bankruptcy . . . But Probably Should Be

The non-dischargeability of debts is oppressive in any case.  Obviously, it is very oppressive for the government to support non-dischargeable loans for young students who have no proper financial understanding.  When educational debts were forbidden for discharge, many undesirable, profit-driven aspects began to be woven into our higher education system. 

Therefore, should student loan debts be discharged in most bankruptcy cases?  The answer this question is probably “yes” for obvious societal reasons.  Current legislation forbids student loan discharge.  Hopefully, the future will see the need to change this law after the full effects of our altered education system become apparent.   

PERSONAL NOTE: I write to support law change.  Student loans should be discharged like any other form of debt.  This is not due to personal reasons: I have no student loan debts.  Instead, I have seen this immoral system and it’s result “up-close.”  My experience as a Bankruptcy attorney and with higher education have clearly revealed all the abuses that are taking place under the current legal system. 

Will I ever be able to discharge student loans in bankruptcy?

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Our clients frequently ask this question, “Will I ever be able to discharge student loans in bankruptcy?”  We frequently tell our clients that there has been some talk about student loans being discharged throughout Washington, but no action has been taken yet.

Now as the “student-debt crisis” looms over the nation, more aggressive action has been taken.   Senators Richard Durbin and Harry Reid have introduced a bill into Congress that would once again allow student loans to be discharged in bankruptcy.   Although both Senators are Democrats, but there is bi-partisan support for aggressively addressing the “student-debt crisis” even to the level proposed in the bill.

The “crisis” of student loan debt becomes evident upon exploring some of the statistics behind the problem.  There are approximately 40 million Americans with student loan debt with an average student loan debt at a striking $29,000.   With these statistics, it is easy to deduce that there is approximately $1.2 trillion of student loan debt held by young adults, their parents, and grandparents across the nation.

Did our congress make a horrible mistake in 1978 by making student loans non-dischargeable?   Has education become big business in America both in the student loan market and in high-tuition schools?   How did it become “good public policy” to enslave young people and their families with non-dischargeable massive debts instead of making other avenues for obtaining education?   These are the questions that are being asked both in Congress and around the country.

Senator Durbin, in support of the proposed student loan bankruptcy bill, stated “Too many Americans are carrying around mortgage-sized loans debt that force them to put off major life decision like buying a home or starting a family.”   He went on to explain how this burden of student loan debts affects for decades not only students but their entire families.

A substantial amount of these former students now carry such “mortgage-sized” student loans never receiving a diploma that provides the financial advantage necessary to allow them to repay the student loan.   These student loan providers and colleges are quick to saddle massive, non-dischargeable debts on 18-year-old students who have no real-life employment or debt repayment experience to understand the magnitude of their decisions.

President Obama has also recently made efforts to address the “crisis” by creating a “Student Aid Bill of Rights” which is primarily designed to promote changes in the student loan laws especially by collecting information about student loan abuses.

Returning to our clients’ common question, “Will we ever be able to discharge student loan debts in bankruptcy?”  The answer to that question will likely soon be determined or debated in Congress.  My answer, as a bankruptcy attorney, would be that allowing student loans to be dischargeable in bankruptcy once again is the only rightful and appropriate way to balance out the current crisis and to restore our “big business” schools back to their original design: education.

– Indianapolis Bankruptcy Attorney John Bymaster on the “Student Loan Crisis”