• Student Loans and Bankruptcy
  • May 30, 2012
  • Law Firm: Law Offices of Rami N. Nabi - Tustin Office
  • Many undergraduate and graduate students have found it very difficult to find employment after graduation. In result these former students have not been able to pay their student loans. Furthermore, with the growth of for-profit schools, too many students have been enrolled in expensive programs with the assistance of private student loans. Private student loans have fewer consumer accommodations like hardship deferments and forbearance opportunities that federal student loans do making default rates extraordinarily high.

    The current state of bankruptcy law does not allow a discharge of student loans through bankruptcy but only in very limited circumstances. Yet, there may be some hope yet for former students to help them discharge their student loans. Legislation is pending in both houses of Congress that would make private school loans dischargeable through bankruptcy. This used to be the case before Congress changed the bankruptcy code in 2005. Although this legislation will not discharge federal student loans it will offer relief for private student loans. Outstanding student-loan debt reached an estimated $867 billion in the fourth quarter, and is greater than total U.S. credit-card debt. Not a good sign for recent grads.

    The largest private student lender is Sallie Mae, which made $2.7 billion in private education loans last year, up 19 percent from a year earlier, the company said in a statement in January. It expects to originate about $3.2 billion this year. There are arguments on both sides stating that if student loans are discharged it would simply increase the interest rates for further student loans and future students may not have the ability to receive an education.

    There are possibilities for some students to discharge student loans however you have to show the bankruptcy court that you are suffering from a hardship in order to do so. One thing is certain, the student loan issue has to be addressed by congress. Many students are becoming debt slaves after graduating and with the current job market the future looks grim for many of these educated students. Keep posted for more updates.