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

March 17, 2015

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”

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