Despite all of the student loan defaults by economically pressed graduates, federal lenders made about $66 billion on loans for the federal government between 2007 and 2012. The industry is not suffering and would not suffer if Congress amended the law to liberalize the current standards for discharging such loans in bankruptcy. Arkansas residents stand with the rest of the country in hoping to see reform with respect to the dischargeability of student loans.
The current bankruptcy law requires that a person must suffer from "undue hardship," which is a very subjective term but one that the courts have traditionally interpreted very strictly. Although some appellate courts have given credence to a broader interpretation, the majority of courts still say that a person cannot discharge a student loan debt if there is a likelihood that the individual will someday be able to dig out of debt. Even in that context, some courts are coming around to giving relief if it is uncertain what the individual may be able to accomplish financially in future years.
One state has decided that the situation is so bleak that the U.S. congress should take action to rewrite bankruptcy laws to make it easier for debtors to discharge student loans in bankruptcy. The Vermont legislature passed a joint resolution that calls for "federal action" to address and alleviate the intensive pressures on the economy that the student loan debt crisis is creating. The resolution requests the U.S. Congress to amend bankruptcy laws to eliminate the strong prohibition against the discharge of student debt.
Student loan debt nationwide is now up to $1.19 trillion, having tripled between 2005 and 2015. In 2015, there were 400,000 defaults, which was substantially higher than in 2014. It is unlikely that the impact of one state's resolution could bring action from Congress, but a flurry of many states with similar resolutions, including one from Arkansas, might start a tidal wave of action for liberalization of the bankruptcy rule by the federal legislators.
Source: watchdog.org, "Vermont House asks Congress to let student-loan borrowers file for bankruptcy", Michael Bielawski, May 3, 2016