Should Congress Rescind the Bankruptcy Provision Blocking the Discharge of Student Loans? - Westgate Law

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Should Congress Rescind the Bankruptcy Provision Blocking the Discharge of Student Loans?

So many student borrowers are in default on their loans that many are beginning to demand why. What is it that is driving so many student borrowers to default on their debt?

Students who pay for college with federal student loans can avoid default. If their situation is such that they are unable to make their payment/s as agreed, they have access to programs offering lower payments (or no payments at all in some cases) until their financial situation improves. Students who pay for college by taking out private student loans (from banks or other financial institutions) usually do not have a similar option. If they lose their job or have to deal with a long term sickness, etc. they often have no other choice, but to default on their loan. This damages their credit history and their ability to borrow money for other purposes (buying a house or a vehicle). In some cases, it can even have a negative effect on their ability to find a job.

Members of Congress, along with Federal regulators, have been pushing private lenders to offer financial hardship programs and flexible payment options similar to those provided to student borrowers through the federal system, but so far most private lenders are refusing to provide any useful payment assistance. Many now feel that Congress should step in and require them to make some changes in order to help decrease the number of student borrowers going into default.

Others feel that the crux of the problem occurred in 2005 when Congress rushed through a provision that made student loan debt (private or federal) close to impossible to discharge through bankruptcy. Since the provision was put in place, lenders have zero incentive to work with borrowers in danger of default. Individuals who want to pay, but do not have the means to do so under the original loan terms are simply out of luck. Many believe that Congress needs to step in and fix the problem they created back in 2005 by skipping the debate and simply rushing the new provision regarding student loans and bankruptcy through. Those that believe this is a large contributor to the problem of excessive numbers of student borrowers in default are urging Congress to rescind the bankruptcy provision.

Others believe the best solution would be to require all private lenders to create and advertise helpful, flexible payment plans for delinquent borrowers similar to those provided by their federal lending counterparts. In addition, some argue that Congress should make requirements of private lenders of student loan debt similar to requirements in place for mortgage providers: respond in a timely manner to any requests for a modified payment schedule. The goal is to help delinquent borrowers to find a solution that involves meeting their financial obligations (with alternate terms, payments amounts, etc.) in order to avoid the excessive number of student borrowers in default (with more on the way). Many believe that it’s only fair that student borrowers be offered the same chance as home loan borrowers when it comes to avoiding default on their loans with access to alternate payment programs, etc.

To discuss whether or not you have any viable options regarding bankruptcy and your student loan debt, contact the southern California bankruptcy attorneys at Westgate Law.

About the Author

Justin Harelik

Justin has a singular goal: to get people out of financial distress and move them to financial stability and prosperity. He does this by combining 15 years of in-depth experience in bankruptcy, credit management, debt negotiation and student loan modifications, and he does it with both English and Spanish-speaking clients.

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