Congress May Allow Private Student Loans to Be Shed in Bankruptcy

[Purveyor]

Private student loans have long been one of the scariest debts that a person could take on. Unlike, say, a mortgage loan or a credit card balance, private student loans cannot be discharged in bankruptcy except in extreme circumstances.

Two bills recently introduced in Congress aim to change that. Senators Dick Durbin (D-IL), Sheldon Whitehouse (D-RI) and Al Franken (D-MN) introduced a bill in the Senate that would rework the bankruptcy code, while Representatives Steve Cohen (D-TN) and Danny Davis (D-IL) introduced a similar bill in the House. While there are some differences between the measures, each aims to have the courts treat private student loans like most other types of debt. However, both bills would continue to except private student loans offered by state agencies from bankruptcy proceedings, according to Mark Kantrowitz, who tracks the student loan industry for FinAid.com.

http://blogs.forbes.com/moneybuilder/2010/04/22/congress-may-allow-private-student-loans-to-be-shed-in-bankruptcy/

[DURHAM D]

1. This bill needs to be followed closely.

My guess is that in seeking BI-PARTISAN support a new law would include the provision that if someone sheds a private student loan through bankruptcy - our tax dollars would then make the lender whole or partly whole. In other words - this is probably just another way to move monies from the public coffers into private hands.

[DrToast]

2. No free lunch

I'm not saying this is good or bad, but if they do pass this law the interest rates will increase on these types of loans to account for default risk.

[MidwestTransplant]

3. They will on private loans not those issued by the fed govt or state entity.

[DrToast]

4. This is only involving private loans. You can't discharge government loans through bankruptcy.

[MidwestTransplant]

5. Right so the rates shouldn't increase on the gov't loans which I assume are backed

by the gov't anyway.

[bluestateguy]

6. Then they better also limit interest rates

Because to pay themselves back for the people that discharge their loans, the banks will raise rates on everybody else. Congress has to find a way to prevent that.

[mike_c]

7. ohgodYES! Please let it be so!

I might not have to retire to homelessness if this happens. I'd bankrupt out of them in a skinny minute. If I don't, I'll pay nearly a thousand dollars a month for the rest of my life, just as I've paid it for the last 15 years or so.

The current system of private student loans creates an entire class of debt servitors, indentured for most or all of their working life. I pay more for student loan payments than I pay for housing every month.

Wow. Keeping my fingers crossed about this one.

[marshall]

8. This would really help some folks I know

I have several friends who graduated with a mountain of debt that due to the youth and inexperience they unwisely racked up--and I'm talking about almost 100 K for a liberal arts undergrad degree with little hope of returning the investment they made in themselves. They are looking at paying and paying until they are almost retirement age.