In today’s blog post we ask the question: Will It Soon Be Easier to Discharge Private Student Loan Debt in Bankruptcy? The answer is maybe. Bills have been introduced in the House and Senate that would amend the U.S. bankruptcy code to allow privately issued student loans to be discharged in bankruptcy proceedings.
Let’s put this into a bit of context. According to the Consumer Financial Protection Bureau there are $1 trillion in outstanding student loans in the United States and according to TransUnion more than 50 percent of student loan accounts are in deferred status. Private student loans comprise only $150 billion of that $1 trillion. This is only a fraction of the overall student loan debt in the United States. Legislators are targeting private student loans because they often have variable interest rates that result in outrageously high monthly payments which leave the borrowers with few options to reduce their payments if they run into any financial roadblocks.
U.S. Congressmen Steve Cohen (D-Tenn.) released a statement regarding his bill in the House. He said “taking action on student loan debt is long overdue….People who seek higher education to better their futures should not be dissuaded from doing so by the threat of financial ruin. Our bill takes a modest but important step in achieving this goal.”
The recent focus on the magnitude of the student loan debt issue in the media might help the bill’s prospects. That said, this is the fifth time a bill has been introduced in the House to make it easier to discharge private student loans. Remember, just because there are bills being introduced to discharge private student loan debt does not mean that students will necessarily see any relief anytime in the near future, but at least we are talking about this issue.
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