Debate: More talk about potential downfalls of allowing for student loan bankruptcy relief

So many Americans are afraid of any “bursting bubble.” The bursting housing bubble, for example, crippled many individuals and families when home values dropped and people went from having equity in their homes to being upside down. When jobs in several industries were scarce, many people lost their savings. Too many innocent single parents ended up moving in with their own mothers and fathers to give their kids food and shelter.

Can student loan bankruptcy allowances lead to a bursting student loan bubble?

Student debt is incurred through public and private lenders. Some loans are secured by the U.S. government and others are not. In any industry, the failure to pay back loans, or make good on one’s end of a deal, can lead to the floor dropping out and financial failure of the individuals and organizations involved. Many financial critics talk about the repayment of student loan debt being used to lend more money to new students applying for financial aid and loans for school.

According to another recent article, “Disaster looms with student loan bankruptcy consideration[i],” the approximate amount of current student debt is $1.3 trillion, with the federal government guaranteeing 90 percent of those student loans. As we reported in our last blog on this issue, “Should Congress move forward with student loan forgiveness in bankruptcy courts,” the average student loan debt is around $30,000 but many more students have more than $100,000 in student loan debt!

Will students consider bankruptcy as part of their financial plan to pay for college and graduate school?

While many optimists believe that students today know the financial and educational challenges ahead of them and those students desire a good credit rating and clean financial record without collections or bankruptcies. However, the best plans in life can be prevented or influenced by considerations beyond our control. In those situations, it might make sense to extend bankruptcy protection to student loans in addition to the other personal and household debts dischargeable under bankruptcy law.

An alternative to bankruptcy, for those concerned about debt, might be one of the many federal student debt relief programs. For example, “The William D. Ford Federal Direct Loan Program was established in 2007 so students can reduce their debt. Students who pursue careers that are deemed to be in the public interest and have relatively low salaries, such as nursing and teaching, can have a portion of their loan debt forgiven.[ii]

Until there is a change in the law and bankruptcy becomes an option for student loan debtors, we can only speculate about what could happen and how many student loan cases are likely to result in bankruptcy. There will be much more debate on this issue in upcoming news stories.

Joseph Wrobel, Ltd. will follow the student loan forgiveness news to keep you informed of your options.

Joseph Wrobel, Ltd. helps people get control of their finances and a fresh start at financial freedom. The firm’s website contains informative videos about financial issues as well as bankruptcy protection for families who want a fresh start. To keep in touch and read about consumer finance news and stories you can Like the firm’s Facebook page and Follow Joseph Wrobel. Ltd. on Twitter. If you need immediate legal assistance, please call Joseph Wrobel, Ltd. by calling (312) 781-0996 to talk to an attorney today.


[i] Times Leader, Disaster looms with student loan bankruptcy consideration, by Eileen Godin, Apr. 9, 2015.

[ii] See HNi above.