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Discharging of Student Loans in a Bankruptcy?

Question: Why can't I include student loan debt in a bankruptcy filing?

Answer: It wasn't always that way. Until 1976, all education loans were dischargeable in bankruptcy. But that year Congress began requiring borrowers to wait at least five years before they could discharge federal student loans. Since 1998, however, borrowers have been unable ever to discharge federal student loans, and in 2005 the then-Republican-controlled Congress made private loans almost impossible to discharge. Essentially, borrowers must prove something pretty close to impossible: that they can't repay and will never be able to, but the standard is vague. And litigating in bankruptcy court may be impossible financially for many in those circumstances - i.e. they can't pay their bills so they can't afford to hire an attorney.

Virtually any other kind of debt — including medical bills, mortgage, credit cards and car loans, even gambling losses— can be discharged in bankruptcy, allowing the "honest but unlucky" a second chance to restore their financial lives.

But under a 2005 law passed by Congress to protect lenders, private student loans fall under the same nearly-impossible-to-clear category as child support payments and criminal fines. Now, under a bill sponsored by U.S. Senator Richard Durbin (Democrat of Illinois), private student loans would be able to be discharged in bankruptcy. Private student loans are about 15% of student loans outstanding. We urge the Congress and President Barack Obama to pass this important piece of legislation.

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