Protecting Your Rights And Your Future

New bill proposes restoring bankruptcy relief for student loans

| Mar 19, 2015 | Personal Bankruptcy

In 2005, the U.S. Congress made changes to the bankruptcy laws that were intended to cut down on the number of filings and to restrict relief in some situations. Nonetheless, most consumers in Arkansas and nationwide would qualify for effective Chapter 7 or Chapter 13 relief today despite the changes that were made. However, one type of relief that was effectively stymied since 2005 has been the ability to discharge student loans in a bankruptcy.

One result of taking away that remedy was the amassing of nearly $1.2 trillion of student loan debt with no effective outlet to release some of it. That has become a significant drag on the recovering economy. The problem, which reached crisis proportions during the recession, continues to fester and to be the focus of nationwide commentary and debate.

Accordingly, a group of 12 Senators have introduced a bill in Congress to attempt to alleviate the student debt crisis and restore some level of bankruptcy relief for student loans. The bill, dubbed as the Fairness for Struggling Students Act of 2015, would provide a discharge remedy for private student loans by treating them like any other private unsecured debt. The relief may be partially illusory, however, because private loans comprise only 10 to 15 percent of the student loan debt load.

The bulk of the debt is held by the U.S. Department of Education. Although the proposed legislation does not touch federal student loans, President Obama directed federal agencies to determine whether federal student loans should also be dischargeable in bankruptcy. If the consensus of federal agency opinion favors bankruptcy relief on federal loans, that relief could come rather quickly because executive action is much quicker to implement. For those in Arkansas who are struggling with student loan obligations, it may  be that significant relief will soon be available.

Source:, “Senators Introduce Legislation To Make Private Student Loans Dischargeable In Bankruptcy“, Ashlee Kieler, March 12, 2015