Qualified Student Loan Debt Could Become Dischargeable

A proposed amendment to the current laws concerning student loan debt could have allowed for more student loan debt to be dischargeable in Chapter 7 or Chapter 13 bankruptcy. This amendment would keep certain types of debt secure from discharge, while allowing others to be cleared in bankruptcy. The setup may help to ease the burden on young graduates coming out of school with few job prospects and loads of debt.

Chapter 7 Student Loan Debt Non-Dischargeable

A Chapter 7 bankruptcy filing does not eliminate educational educational debt. Currently, the only way to obtain a discharge for federally secured debt is by qualifying for "undue hardship" – a nebulous design which the government is very evasive about granting. Undue hardship qualification standards can seem almost arbitrary – in one case, a man who became blind after an illness was unable to secure the design, while in another a couple who were both full-time employees working with special-needs students obtained student loan debt forgiveness after petitioning for undue hardship.

These are rare cases, and examples of how difficult discharge of student debt can be. Too often, the debt follows its carriers through all financial hardships and sometimes even to the grave. Federal student loans do carry a number of financial hardship protections, including forbearance, deferment, and graduated reimbursement programs based on income. For many borrowers, however, the protections afforded by bankruptcy are the best option for dealing with high levels of debt.

One proposed solution would be to make certain qualified student loans non-dischargeable in Chapter 7, while allowing the reminder to be discharged. This would ensure that loans with fair repayment terms, reasonably low interest rates, and flexible repayment options would be secured from discharge in bankruptcy, while some of the higher-interest private loans would not be covered under the same umbrella. These would move into the same category with other types of unsecured debt, such as credit card debt and medical debt, both fully dischargeable.

Such a program would require a level of transparency for private student loan servicers, demonstrating interest rates up front and subjecting lenders to the same kinds of standards required of credit card companies. It would be a big step toward handling the student loan loan problem in this country. The best step you can take is to educate yourself about the nature of the loans, and decide whether the investment is worth taking on the debt. Changing the requirements for discharge may help borrowers make better decisions for their financial futures.

Source by Lawrence D Pew

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