Why are student loans still nondischargeable in bankruptcy?

In a recent survey of bankruptcy lawyers in Georgia and throughout the U.S., more than 80 percent of respondents stated that they have seen an increase in clients with student loan debt in recent years. However, this growing number of student loan debtors are unlikely to garner any significant relief from the bankruptcy process, due to a federal law that prevents the discharge of student loan debt in bankruptcy.

In recent weeks, student loans have been the focus of much attention at a national level, with President Obama calling for Congress to halt a scheduled doubling of the interest rate on federal Stafford student loans. Regardless of whether this passes, it will have no effect on older borrowers who are deep in debt and unable to make their monthly payments.

And there are millions of people in this situation. According to an estimate from the Federal Reserve Bank of New York, approximately 37 million Americans have student loan debt totaling nearly $900 billion. Further, about 5.5 million debtors have at least one student debt account that is past due.

In 2005, Congress placed student loans in a category that includes child support and criminal fines by making private student debt nondischargeable in bankruptcy. Now, as much national attention has been called to student loans, borrower advocates are wondering why lawmakers don’t take action to change the bankruptcy laws.

Doing so, they say, would be one of the most effective (and least expensive) ways to help those who are struggling with student loan debt, without providing an undeserved benefit to those who are able to manage their debt.

Source: Atlanta Journal-Constitution, “Even after bankruptcy, trapped by student debt,” Justin Pope, April 25, 2012