Tuesday, March 20, 2012

Sen. Durbin proposes to make student loans dischargeable in bankruptcy

SAN DIEGO. Today, Senate Majority Whip Richard J. Durbin (D-Ill.) convened a judiciary subcommittee hearing to alleviate the next potential “debt bomb” — student loans. Americans currently owe more in student loans ($870 billion) than they owe in credit card debt or auto loans.

Currently, it is almost impossible to discharge student loans in bankruptcy. To qualify, a debtor’s peril must be comparable to an unemployed, homeless Ivy League graduate on food stamps for many years, mentally retarded art education grad unable to communicate in English, or a single mother of five young children, including autistic twins. Read more on those cases and on how to qualify here.

A homeless, penniless Ivy League grad unemployed for many years might be eligible to discharge student loans under the current bankruptcy law

Sen. Durbin maintains that private student loans should be treated similarly to other private debt in bankruptcy to ensure students are not stuck with their loans for life, unlike credit card debtors.

Unlike private student loans, federal student loans have fixed, affordable interest rates, offer forbearance in times of economic hardship and manageable repayment options such as the income based repayment plan.