Should Congress move forward with student loan forgiveness in bankruptcy courts?

Americans are weighted down by unprecedented amounts of student debt. Some reports suggest the amounts of student loans have doubled since 2007. The average amount of student loan debt seems to be about $30,000. Many more Americans have significantly higher debt totals, many exceeding $100,000 for students pursuing professional careers in law, medicine and finance.

Americans have 40 million dollars in student loans totaling 1.3 trillion dollars.

Under the current laws, you may file for bankruptcy and discharge your responsibility to pay mortgage, credit card, auto and consumer debts but not student loans. There are a few very limited exceptions to the rule against student loan discharge in bankruptcy, but they do not apply in almost all cases.

90% of student loans are backed by the federal government and 10% are largely unsecured private loans. Both public and private loans are “student loans” in bankruptcy and are not dischargeable.

President Obama issued a memorandum directing his administration to investigate whether allowing student loan discharge is an important option. If the reports indicate student loan bankruptcy is a good option, Congress could have the opportunity to weigh in and make law allowing student loan forgiveness.

Not everyone wants student loans to be forgiven in bankruptcy cases.

The main lending industry trade association, the Consumer Bankers Association, asserts that overall only three percent of student loans are in “financial distress.” The group also spoke in opposition of including student loans in bankruptcy, stating, “We are working to provide flexible repayment options to keep them from finding themselves in bankruptcy at all.[i]

Likely, the student loan industry would be injured if student loans become dischargeable in bankruptcy because it could drive up the interests rates on student loans, making them even more difficult for people to repay.

The Republican controlled Congress is also likely to not move forward on legislation coming from President Obama’s administration, which could also hurt the chances of student loan forgiveness.

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] Wall Street Journal online, White House Floats Bankruptcy Process for Some Student Debt, Mar. 10, 2015.

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