Will Bankruptcy Forgive Student Loans?
Will student loans ever be forgiven during bankruptcy? The answer is: PERHAPS! President Obama spoke to the Georgia Institute of Technology recently on March 10, saying that his administration is looking into the idea. He revealed that he’d ordered officials to look into whether or not making student loans forgivable during bankruptcy would be helpful to millions of Americans who are under the burden of severe student debt.
The White House has made a series of efforts to alleviate student debt in America and student loan forgiveness during bankruptcy is the latest. Currently, bankruptcy laws protect student debt by being wiped away by a bankruptcy filing. However, with the tremendous, crippling weight of student loans, lawmakers are seeking new, flexible ways to students from a future trajectory of financial hardship. The goal is to make college more affordable for young people so that once they graduate, they aren’t so burdened with debt that they can’t do anything else.
The WSJ offered the following numbers on U.S. student debts:
- -In the last seven years, U.S. student debt has more than doubled.
- -Almost 25% of current borrowers are behind on their payments.
- – The average student loan debt nationwide is right below $30K.
- -The government lends 90% of the national student debt.
In his speech, President Obama offered only a few first ideas and details of this effort. It wasn’t clear whether or not an eventual proposal would address only loans issued by the Federal Government, or would also somehow affect private loans as well, such as those issued by firms like Wells Fargo & Co. and the like.
Obviously, the president’s interest in changing bankruptcy law is still in its formative stages, but even if the White House did come up with a change, it would likely face huge opposition in the Republican-controlled Congress. As the WSJ also reports, it is still unclear how effective changing bankruptcy law would be in really helping borrowers anyway. They report that only 713 bankruptcy filings in 2014 were filed to seek student loan relief.
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