Last month the Obama Administration announced support for a law that would allow people to discharge certain types of student loans in a bankruptcy proceeding. The recommendation that was detailed in a report to Congress from the Department of Education and Consumer Financial Protection Bureau suggested that private student loans should be eligible for bankruptcy protection. Private student loans are estimated to make up about 15% of outstanding student debt in the United States. However, at roughly $150 billion, it is still a significant amount. The report did not support the discharge of federal student loan debt in bankruptcy.


The change would modify the 2005 law that prohibits the discharge of student debts except in very rare circumstances. However, some private student loan providers allegedly do not support a broad change to the law. They warn that a law that permits private student loans to be discharged in bankruptcy would result in higher interest rates for all borrowers because of the increased risk of not being paid back by some borrowers. Sallie Mae, which is currently the largest private student loan lender in the nation,  said it would support including private student loans in bankruptcy in limited circumstances, such as when a borrower has tried, in good faith, to repay the loan over at least 5 -7 years and still experiences difficulty.


Our Minneapolis bankruptcy lawyers understand how the burden of student loans could lead some borrowers to bankruptcy and send our best wishes for a quick resolution to anyone experiencing financial problems due to student loans.

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