Opinion: All Student Loans Should Be Discharged in Bankruptcy

Students in financial trouble deserve a break.

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For many of you, student loans were a necessary evil that have remained a thorn in your side for many years. Even if you file for bankruptcy, that thorn won’t go away—but that might change in the future. In 2005, lawmakers made it very difficult to discharge student loans in bankruptcy unless one was experiencing undue hardship. However, the goal of the proposed Private Student Loan Bankruptcy Fairness Act of 2010 is to reverse part of this law by allowing private student loans to be discharged. This is because private student loans don’t have as many repayment options as federal loans.

While I am not a fan of bankruptcy, and believe it should only be used as a last resort, I do believe that those who are in significant financial trouble should be able to discharge all of their student loans if they choose to file. I’m currently making payments for both my undergraduate and graduate education. If I ever got into a situation where I needed to file for bankruptcy, I’m sure there’s no way I’d be able to keep making those payments. It’s just not realistic. I believe that private student loans, as well as federal loans, should be discharged during bankruptcy. They should both be treated like other consumer loans.

Student loans enable those who could otherwise not afford to the chance to obtain an education and contribute to society. Student loans are often referred to as “good debt,” but in most cases this debt cannot be discharged during bankruptcy, while reckless credit card spending is forgiven. In all “fairness,” that just doesn’t make sense to me.

What’s your opinion on the Private Student Loan Bankruptcy Fairness Act of 2010? Leave your comments below.

Sheiresa Ngo is the multimedia content producer for consumer affairs at Black Enterprise.

ACROSS THE WEB
  • Richard

    I have worries about allowing this debt to be discharged. My primary concern is that students, minority or not, will take large loans for school in order to have substantial refund checks and will live a lavish lifestyle while in college and when it comes time to pay back, they will file bankruptcy and walk away from that. If there was some provision or safe guard to protect against this then it would make this idea more palatable. I agree with you that if student loans are truly a burden an individual cannot afford and remain financially stable, they should be discharged.

    • Jenny

      It’s not only the degree, it’s about hard work and best years of life gone for that education.  Then its also fair if banks could reposes the items that are bought or the cash advances or other types of loans taken out for any reason before filing for bankruptcy.  Why is it fair for some to take any unsecured loans that could have been used for luxury, gambling and was spent in a wrong way and can file for bankruptcy. How about removing the bankruptcy option at all.  why discriminate? 

    • Jenny

      Even if you get the maximum amount of private loan that you are entitled to, you can’t have a lavish life style.  You still have to live like a student because there is a limit that they give you.  
      Before 2005 students with descent credits could also get private student loans for their education with no co-signer involved.    At the time that student loans were dischargeable, there were no problem getting loans if you had a descent credit.  

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  • Rodrick

    Needless to say, the opportunities that are currently available to African-Americans per the federal government have already been overtly saturated by most caucasians. Thus, I vote in that student loans in bankruptcy. Considering that one may never be debt free in societal norm, the strengths of societal norm are our futuristic gurus of societal norm, a vast 20 something America. Although, student loans may be expensive in the future, student loans are essential when students are trying to live and sincerely acquire mere schorlarship status. Student loans have helped me tremendously, due the fact that I have a small family, thus I look forward to my loans semestrial. In an opportunistic world of didactics – students need tools for accomplishing as higher achievers, students need all of the funds that they can muster, afterall it beats not getting your education at all.

  • Mrs.Green

    I think private loans should be discharged if one does file for bankruptcy. Many first generation students and first generation American students fall prey to private loans with HIGH VARIABLE interest rates. Federal loan interest rates are lower and fixed. I’ve seen rates as high as 13%. As the article points out, once you have a private loan, lenders are less willing to modify, deferr, etc. It’s sad, but most people who get caught up w/ private loans are of color.

  • Elle

    After 10 years, I still owe on my student loans. I have been unemployed for the past two years and have not been able to repay. I have gotten so many deferments that I don’t think i can get any more. i really wish there could be some kind of forgiveness.

  • Ty

    Richard, how many college students do you currently know? I myself am a college student and am lucky to have enough money for groceries and textbooks and that is with a scholarship and two loans! I still have to do work study and work three part-time jobs to afford school expenses and my dorm stay because my parents make too much money for me to get a larger loan. I feel good about working hard to earn my education, so please don’t think college students are looking to get a “substantial refund check” with the ultimate goal of filing bankruptcy and hoping that trip to Cancun will be excused in court.

  • Failing College Graduate

    Articles like these are inspiring.  At this time, there’s no hope–not even a prospect of hope.  I did what I was supposed to do 1.) Graduate from hospital 2.) Stay out of trouble and 3.) Graduate from college.  I’ve yet to make an annual salary which supersedes the amount I owe on loans.  To make things even worse, I’ve been unemployed for over year in an funky downsizing situation where I didn’t even qualify for unemployment benefits after fighting almost an entire year.  I’ve tried to go entrepreneurial in the field in which I graduated in, but even that isn’t yielding anything.  They’re no jobs, but yet Nelnet is still putting pressure on me–even hounding my parents for money. Is this the American Dream promised to me if I did what I was supposed to do? It’s more like a nightmare.  Since there is apparently no help out of this, when I am fortunate enough to receive divine help to dig myself out of this rut I will promise a few things! 1.) It is very unlikely that I will allow my children to go to college unless they indicate overwhelming promise in a SPECIALIZED area. 2.) My children will go to trade school following graduation in a career that they have shown distinct interest and promise in.  I honestly don’t believe the American Dream is for middle-class citizens anymore. Honestly, I think it’s the job of parents in today’s society to supplement as much of the dream as possible. Bankruptcy at this point would be like a dream come true. Please make it come true, so some of us struggling people can at least have the opportunity to start over.  #help

  • banker bob

    Really? The entire reason student loans are treated differential y from other loans is because… in order to convince banks to make these low-interest loans in the first place, the Federal Government put in the provision that a mere bankruptcy filing can expunge the debt. I think that’s fair. 

    What’s to prevent every recent college graduate from graduating, purposely not finding a job for the first year after graduation and then immediately filing for bankruptcy? Struggling graduates should get some kind of help, but not a free education. This is a ridiculous idea, mainly because there’s no way to prevent major abuses of your plan. And because banks would simply make it more difficult for students to get loans in the first place, if they knew a simple bankruptcy could wipe out the debt–and cause them to lose huge amounts of money.

    • John

      Yes!  I have a lot of student loans … about 80K.  I pay 3% interest on my student loans.  In contrast, I pay about 15% on my credit cards.  If student loans were treated the same as credit cards and I had to pay north of 10% on my student loans, I would be in a financial crisis.  We need to do everything we can to keep student loan interest rates low so people have access to education.  The data proves that in most situations a college and graduate degree is a great investment … we simply need to have reasonable financing to allow this investment to pay off!   

  • banker bob

    in most first post, i meant a mere bankruptcy CANT expunge the debt–that’s the whole reason banks make these loans in the first place.

  • Colette

    Absolutely! Filing for bankruptcy is another way of saying “I do not have enough income to pay any of my debts.” Student loans must be figured into that equation. Most people get into excessive debt by taking out student loans in the first place.
    Students who have to take out loans are also leaning heavily on their credit cards to pay for basic expenses. By the time they graduate, they are top heavy; toomuchdebt/notenoughincome and the cycle begins. I am always appalled to hear student loans described as “good debt”-What! No student should have to take out loans just to get a degree.   Tax paying U.S. citizens should not have to also repay government loans.
    All student loans should be forgiven on the basis of these criteria: 1) the student is a U.S. citizen actively pursuing full-time work in underrepresented occupations, 2) the student commits to working at least 7 years in the U.S. (or in one its territories) 3)the student performs community service of at least 100 hours a year).  If these policies were incepted, bankruptcy would be avoided for many people in the first place.

    • John

      Okay, now what happens when the banks refuse to make the loans or raises the interest rates to credit card levels?  Are we going to legislate the interest rate that banks are allowed to charge and then force banks to make loans?  Or is the federal government going to completely cover the loans?  The result of all of this would be to limit access to higher education.  Only the people who have saved all of the money they need for college (or receive full scholarships) will be able to attend.  

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  • Micole

    As a former student I fell that I was forced into taking out loans to pay for my education. I was able to obtain loans (private loans) as easy as I was able to get a credit card while in college. The university I graduated from was private and the tuition was pretty pricey. I did not qualify for financial aid only federal loans and what they did not cover I took out private loans to cover. I only have 3 but they are a huge stress for me now because my salary does not allow me to cover the monthly pmt, my federal loan pmts, and living expenses. I do not have a car payment and forget about owning a house. Our country is GREEDY and the amount these banks make on interest alone is ridiculous. I would be okay with paying them back if my private loans didn’t have a interest rate of 10% and up! I have an issue with them offering no flexibility on pmts in times of financial need so if they can’t work with us and we’re willing to pay then yes they should be discharged. Maybe then banks will realize that a degree alone does not guarantee a salary that will allow students to repay the debt and be more careful as to who they loan the money to. At this point I wish they would have turned me down.

    • Jenny

      You can get same education in so many countries without having to deal with student loans or without spending a fortune.  I wont’ let my children to go to school here since they will suffer once they graduate.    People who love to spend and use their credit cards to the max for luxury or buy things that are not necessity have the option to file for bankruptcy but people who took loans for their education and spend years and their youth and work hard for their education have no option and are doomed no matter what.   What A SHAME! I know many people  regret their student loans. I don’t know who said this is land of opportunity sounds like land of misery.  So many people specially the ones who are educated here with unaffordable loans are suffering and have a no way out of this misery. 

  • Jubba

    Maybe you people who think that this is a bad idea need to actually read the bill before you start making your own assumptions. If the bill passes then you still have to meet a certain requirements to even be able to include it in bankruptcy. And to you who think that private student loans are not already at cc % rates then you need to do your homework. I have 30,000 in private student loan debt at 16% so yea its not easy to pay off when you cant even touch the actual loan and all you are paying on is interest. This bill is to help people who have done everything else and they have no other option but to file bankruptcy. If you would take the time to read a little more than a brief article on this subject then you would know that most people don’t like the idea of filing bankruptcy and when you was still allowed to file on your private student loans before 2005 you would find out that it was less than 2% that ever filed bankruptcy on student loans. But thats my 2 cents on the matter. People need to educate themselves before they speak on what they dont know.

  • AnonBKAtty

    I firmly believe that at least the private portion of student loans should be discharged in bankruptcy. As both a bankruptcy attorney and a recipient of student loans for my law school education, I see the burden these loans place on recent grads, especially in this economy. First, the private banks have assumed the risk of loss of their investment into the student when they put him or her through a credit screen to qualify for the loans. Second, the increasing cost of an education is far out-pacing inflation, and the real ROI on an education, with fewer services and massive cutbacks by the universities. Without student loans, there would be a grave disparity between the “haves” and “have nots” with regard to the affordability of an education and the resultant job opportunity in the marketplace. Therefore, they are a necessary evil. Furthermore, private student loans are very inflexible in working with recent grads who faced with either unemployment or underemployment. I do not see a very persuasive argument why private student loans should be treated any differently than a credit card in their discharge status.

  • Joe Student

    Sally foolishly borrowed $100,000 to start a risky business. The business subsequently failed and Sally had no way to pay back the money. But Sally was able to discharge her debt in bankruptcy court because a judge said she didn’t have the ability to pay back $100,000 on a minimum wage salary.

    Joe borrowed $80,000 to go to college because he is told by his high school counselor, news media, etc that student loan debt is “good” debt. Joe graduated with a bachelor and master degree in accounting. But Joe was unable to find a business job because he had a master degree in accounting but didn’t have any experience. Joe found himself in a catch situation. Joe couldn’t get a job because he had no experience. But how could Joe get experience without a job. Joe spent 10 years after college trying to find any type of job that paid more than minimum wage. But Joe was constantly told by potential employers that he had too much education and no experience. So now Joe is over ten years out of college and still working for $15,000 per year with no benefits.

    Thankfully for Joe, Obama changed the student loan law where student loan payments are based on income. So Joe’s monthly student loan payment is less than $50 per month. If Joe can make these small payments for the next 25 years, the government will pay off Joe’s remaining balance. The $50 per month Joe pays doesn’t even cover the interest on the loan. So basically the taxpayers are going to pay for all of Joe’s education. But why should taxpayers be paying trillions of dollars for the masses to go to college when they’ll be working for minimum wage???

    Why can Sally discharge her debt and Joe not discharge his??? Didn’t both incur the risk of not being able to pay back the money??? There is no guarantee that a college degree will equal anything more than a minimum wage job. This story is a little personal to me because I’m Joe.

  • Karen Lee

    For help and to see what is being done about student debt, visit forgivestudentloandebt.com or on FB. Congressman Hansen (MI) just introduced a bill yesterday (March 2011) for a forgivenss of student debt under certain condition. He plans to unveil a “Students Bill of Rights” in the next couple of weeks that include the right to discharge in bankruptcy. Please visit our FB page for more information.

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