An article on USNews.com reports that there are new bills in front of both the congress and the Senate that could relieve the burden of student loans for some borrowers. The two bills would allow for private or commercial student loans to be forgiven in cases of bankruptcy.
College students today are faced with high tuition costs and diminishing student aid. Many parents of college students are struggling to make ends meet and cannot contribute to their children’s college educations. As a result more students are being forced to borrow and borrow more money than at any time in the past. This sadly has become a cocktail for financial disaster.
Students are graduating with huge amounts of debt and then are unable to find employment in a struggling economic environment. In 2009 the average student leaving college had $24,000 in loans and that number is likely higher today. Bottom line, many college graduates are finding themselves swimming in financial debt. The new bills would help protect those graduates that are faced with severe financial hardship
According to the article:
Senators Dick Durbin (D-Ill.), Al Franken (D-Minn.), and Sheldon Whitehouse (D-R.I.) have introduced the Fairness for Struggling Students Act of 2011 in the U.S. Senate. Representatives Steve Cohen (D-Tenn.), Danny Davis (D-Ill.), John Conyers (D-Mich.), and George Miller (D-Calif.) introduced the related Private Student Loan Bankruptcy Fairness Act of 2011 in the House of Representatives. Both bills would restore the ability to discharge commercial student loans in bankruptcy proceedings.
As explained in a press release from Senator Durbin’s office: “Before changes were made to the bankruptcy code in 2005, only government issued or guaranteed student loans were protected during bankruptcy. This protection has been in place since 1978 and was intended to safeguard federal investments in higher education. Today’s bill would restore the bankruptcy law, as it pertains to private student loans, to the language that was in place before 2005, so that privately issued student loans will once again be dischargeable in bankruptcy.”
While federal loans will not be discharged during a bankruptcy, there are other safeguards in place to help college graduates that carry federally funded student loans. These include the income based repayment plan that allows loan holders to make payments on their loans in proportion to their income. Additionally, for those graduates that work in the public service sector, where jobs tend to be lower paying, can apply for public service loan forgiveness.
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