More and more students here in Memphis and across the country are going to college and taking out loans. Unfortunately, many find themselves struggling with debt management. As the student loan crisis continues to grow, people are in search for more options for debt relief.
Student loan debt has long been the one glaring exception in bankruptcy cases. While other types of debt can be discharged in bankruptcy, student loan debt cannot. This often places students in a difficult situation in which they can discharge some debts, such as credit card bills, but not overwhelming student debt.
While this is the way bankruptcy has typically been, it may be changing. Congress is currently considering two bills that alter the way student loan debt is handled. One such proposal includes allowing students to discharge some student loan debt in bankruptcy. In this scenario, students would only be able to discharge private student loan debt. They would also have to wait five to seven years after graduation before they could discharge their student loans. This proposal is similar to the program that was in place prior to 2005.
The other bill currently in Congress proposes that students be able to receive loan forgiveness. While some students are able have their loans forgiven in exchange for working in a public service job, this proposal would expand the current program. The new proposal would allow students to pay back their loans equivalent to 10 percent of their discretionary income for 10 years. Also, it reduces the amount of time students must spend in a public service job before their loans are forgiven from 10 years to five years.
If signed into law, these new options could help students to be able to pay back their loans with fewer issues. However, in the meantime, students must still carefully consider their financial futures when they decide to take out loans for education.
Source: Inside Higher Ed, “Bankruptcy, Not Forgiveness, for Student Loans,” Jenna Ashley Robinson, Dec. 7, 2012