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New proposal could create student loan relief in bankruptcy

Bankruptcy is an enormously useful tool for individuals who are suffering financially to discharge their debt in order to get a fresh start. However, one type of debt has remained, perhaps unnecessarily, difficult to discharge despite the growing number of people who are unable to pay it back. A new proposal from President Obama could possibly make it easier for some people in Washington to discharge student loans that they are simply unable to pay back in bankruptcy.

The proposal only includes private student loans that were issued by a private lender and not to federal student loans. While to some people this might seem unfair, those behind the proposal pointed to various protections within the federal student loan system that are simply not present in private loans. The lack of those protections, they say, is what makes it necessary to allow private student loans to be dischargeable.

The approach described within the proposal is two-fold. Certain private student loans would not be considered dischargeable for bankruptcy, specifically those that offer some type of flexible payment plan to borrowers. For borrowers who are unable to repay their student loan and are not offered any type of flexible plan by the lender, the protections offered by federal loans would be extended to the private loan.

A college degree is one of the most important tools to have when searching for a job, but the cost of a higher education has skyrocketed and far outpaced most people's earning ability. This radical change in cost has left a vast number of Washington students unable to repay their student loans. While bankruptcy currently offers some debt relief by way of discharging other debts and possibly creating a way to then repay student loans, the new proposals could undoubtedly make an enormous difference in the lives of those struggling to keep their heads above water.

Source:, "New Push on Bankruptcy Protections", Michael Stratford, Oct. 2, 2015

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