Senate Bill Would Include Some Student Loans in Bankruptcy

Say the worst has happened. Your bills are out of control, you owe more than you can ever repay, you need a new start—you decide bankruptcy is the only answer. But declaring bankruptcy won’t get you out of your student loan obligations.

Under current law, filing for bankruptcy may allow you to discharge your mortgage and auto loans, but not your student debt—unless you can prove, in court, that your student loan payments are causing you undue hardship.

If a bill filed earlier this month gets passed, that could change for borrowers of private loans. The Fairness for Struggling Students Act of 2015, which was introduced by a group of Democratic Senators, is trying to reverse a 2005 change to bankruptcy law that excluded private student loans from bankruptcy protection.

“Too many Americans are carrying around mortgage-sized student loan debt that forces them to put off major life decisions like buying a home or starting a family,” said Sen. Dick Durbin (D-IL) in a statement. 

“It’s time for action. We can no longer sit by while this student debt bomb keeps ticking.”

However, the bill does not address federal student loans such as those made through the Direct Loan and Perkins Loan programs, which account for 99.9 percent of loan volume. These loans are still excluded from bankruptcy relief.

Similar bills were presented in 2010, 2011 and 2013 but were not passed.

 

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