It is not often, especially with the political polarization happening in the United States right now, for commentators on both sides of the political aisle to come together in support of the same idea, but in late February, two articles were published calling for student loan reform. One author was a conservative, the other liberal, but both agreed: student loan debt should be dischargeable in bankruptcy.
If there is widespread agreement on the issue of bankruptcy and student loans, why hasn’t anything been done?
Put succinctly, lobbyists. A few decades ago, lenders brought about arguments stating that students were fleeing en masse to bankruptcy upon graduation, essentially getting a free degree and pinning the bill on others. The argument makes sense, but did not reflect reality; prior to Congress eliminating the opportunity for student loan discharge, less than 1 percent of student loans were discharged in bankruptcy.
At first, only government loans and loans from nonprofit higher education institutions were affected, but in the 1980s, the law was changed so that only loans from nonprofits could be discharged. And then in 2005, all education loans were excepted.
The unfortunate victims are the students. With rapidly climbing tuition costs, many students come out of college with tens of thousands of dollars in loans. When they cannot find decent paying jobs, they face default. Their credit scores fall, they can lose their jobs and have their wages garnished. A lifetime of financial anxiety follows.
With the next presidential election coming this year, hopefully the issue of student loan and bankruptcy reform will take a more prominent role in political discourse.
It is difficult to make an individual case for student loan discharge in bankruptcy, but there still may be benefits to filing if your student debt is making your life miserable.