It’s been a few months since we last wrote about student loan debt. As we explained in our May 24 post, the general rule is that this type of debt is not dischargeable in bankruptcy. The only exception is in cases of “undue hardship,” and courts do not readily grant that exception.
It is becoming more conceivable, however, that Congress could change this rule. Online petitions by debt-plagued students struggling with a tough job market may have had something to do with this. And the issue has also attracted the attention of Washington-based policy groups.
One such group, the Center for American Progress (CAP), has issued a report calling on Congress to create new student loan classifications and it more feasible for this type of debt to be discharged in bankruptcy.
Under the proposal, all student loans would be necessarily be dischargeable in bankruptcy. There would be a distinction between “qualified” and “non-qualified” loans. Only non-qualified student loans could be discharged in a Chapter 7 bankruptcy filing — and only after a given waiting period.
But the proposal does makes clear that, going foward, qualified student loans would have to be much more transparent about their terms than is currently the case. This would include, for starters, caps on the interest rate lenders could charge.
It would also include deferment and forbearance options, as well as provisions regarding income-based repayment. In other words, the payment terms and amount would become more flexible. And the schools that students are taking out loans to attend would have to meet specific standards on graduation rates and job placement.
Of course, this is only proposal for addressing the nation’s huge student loan problem. But it could be a sign that the tide is beginning to turn and that different ways of structuring student loan debt are on the horizon.
Source: Huffington Post, “Bankruptcy Should Be An Option For Some Student Loans: Report,” Tyler Kingkade, August 20, 2013