Student loan bankruptcy bill introduced in Congress

Last month, we wrote a blog post about the recent efforts to make private student loans dischargeable in bankruptcy. Now, it seems that those efforts may become a reality following the introduction of federal legislation that aims to regulate the private student loan industry and, ultimately, give debtors the ability to discharge those loans in bankruptcy.

Under the bill, which was introduced into the U.S. Senate earlier this week, colleges and universities would be required to inform students about the differences between federal and private loans and their options for acquiring federal student aid. According to Senator Dick Durbin, who required the bill, two out of three students don’t understand the difference between government-offered and private student loans, and that lack of knowledge results in significant financial harm and confusion.

In addition, the bill would authorize debt forgiveness for private student loans in bankruptcy. Durbin says that private student loans are the only form of private debt that is nondischargeable, and those loans can follow students for decades, affecting their ability to buy a home and make other purchases, and simply to make ends meet.

However, a representative of the Consumer Bankers Association, which represents financial institutions that offer student and other loans, private lenders are often unfairly targeted as the cause of the mounting student debt load that affects so many students in the U.S. “When people look at the private student loan market,” he said, “they will realize it’s a great complement to some of the federal offerings out there.”

Source: WBEZ, “Durbin touts new bills to regulate private student loans,” Quinn Ford, Aug. 20, 2012

At our Atlanta law firm, we help clients who are dealing with a variety of debts. For more information on the topic discussed above, please see our student loans page.