Student Loans: Bankruptcy Laws

US bankruptcy laws created the student debt problem.  The bankruptcy laws hold students accountable in every circumstance. Student debt, including both Federal and private student loans, is virtually impossible to discharge in bankruptcy.
The bankruptcy laws promote irresponsible underwriting standards for lenders and out of control college budgets.  Bankers and college administrators don’t have to behave responsibly – they can foist all their bad practices and mistakes off on the students because the students have no recourse.

(Indentured Student – Cartoon (Photo credit: DonkeyHotey)

By removing the possibility of bankruptcy, the US government reduces all students graduating with student loans to indentured servants, without any possibility of freedom.
  • People with credit card debt can negotiate a payment plan with a reduced interest rate and forgiveness of back interest because the lender knows that the debtor has the option of bankruptcy if he refuses to listen and act compassionately.
  • Lenders feel free to increase interest rates and impose harsh penalties if a student debtor asks for forbearance or compassion because of a lost job or unexpected medical bills.  The student has no recourse.
  • Lenders can garnish salaries, social security and disability checks.  The student has no recourse.
  • There is no “lemon” law to invoke if the student doesn’t receive the education that he contracted for.  The college gets their tuition no matter what. The student has no recourse.
Right now the system is stacked against the student.  Students are screwed with no hope for the future.  How can that change?
Restore bankruptcy rights to student loans.  Set a date of five years after graduation or the last day of class attendance if the student didn’t graduate.  Lenders and college administrators will be forced to act responsibly in making student loans, setting interest rates and repayment schedules and in controlling college budgets and class schedules.  Students will have recourse once again.For further information, please go to the National Consumer Law Center page on Student Loans and Bankruptcy.