White house weighing changes to student loan bankruptcy law
Educational debt has reached crisis levels in the United States, with the nation’s total student loan balance now more than double what it was in 2007. According to data from the U.S. Department of Education, the average student borrower in Georgia owes more than $30,000 in educational loans, and many borrowers – particularly those who have pursued advanced degrees – owe far more. In response to this growing crisis, the White House is considering some big changes that could create new options for people who cannot afford their student loan payments.
Revisiting student debt discharge options
Unlike many other sources of major debt in the United States, such as medical bills and credit card debt, student loans typically cannot be discharged through the Chapter 7 bankruptcy process. This is because relatively recent changes to the federal bankruptcy code prevent educational loans from being eliminated except in rare cases of extreme economic hardship.
In response to the growing student debt problem, however, the White House recently announced its plans to revisit the question of whether student borrowers should be permitted to make a fresh start through bankruptcy. Under current laws, a 2012 survey of bankruptcy lawyers by the National Association of Consumer Bankruptcy Attorneys showed that 82 percent said the inability to eliminate educational loans through bankruptcy was “a big problem” preventing their clients from obtaining debt relief.
President Obama has directed the administration to investigate whether bankruptcy options should be expanded for “all student loan borrowers” – both public and private. About 90 percent of student loans in the U.S. are backed by the federal government, while the remaining 10 percent are backed by private companies such as Sallie Mae, Wells Fargo and U.S. Bank. In the past, most discussions about reevaluating the student loan discharge rules have centered only on private loans.
Other student loan bankruptcy issues
The question of whether to allow educational loans to be discharged in bankruptcy is not the only issue being addressed in the Obama administration’s recent focus on student debt. The initiative also includes measures that will provide for stricter oversight of student loan collection companies and create a system for borrowers to register complaints about those companies. The President has also called for clarification of the rights of student loan borrowers in other areas of bankruptcy law.
One way that such clarification could be particularly beneficial for people with educational debts is through the potential expansion of student loan repayment options for borrowers who pursue another type of bankruptcy known as Chapter 13. Unlike Chapter 7, which involves the elimination of debts through discharge, Chapter 13 involves reorganizing and repaying certain debts according to a court-approved payment plan.
According to a recent email from Edward Boltz, President of the National Association of Consumer Bankruptcy Attorneys, Chapter 13 debtors with government-backed student loans may soon be eligible to enroll in income-based repayment (IBR) programs. These flexible repayment plans allow borrowers to make reduced monthly payments based on their income levels. Borrowers who keep up with their payments for a certain number of years can have their remaining balances cancelled. In the past, student borrowers have been unable to enroll in IBR plans during Chapter 13 bankruptcy, thus limiting their ability to obtain maximum debt relief.
Get legal help for your debt problems
If you are struggling with unmanageable debts and would like to learn more about your options for easing those debts through the bankruptcy process, contact the knowledgeable bankruptcy attorneys at Jamie L. Gingold, PC, GingoldBankruptcyLaw.com (Formerly practicing with Gingold & Gingold LLC) to discuss the specifics of your situation.