Student loan debt is a serious financial matter, and one that leaves many of our nation's graduates struggling for many years after they have completed their education. Since 1978, government-issued student loans have been excluded from eligibility for discharge through personal bankruptcy. A similar measure was put into place in 2005 for privately issued student loans. This has left many in California and elsewhere with high levels of unmanageable debt as they move into adulthood.
Some legislators are pushing to change things, however, and a recently proposed bill would allow private loans to be included within the bankruptcy process. A group of 13 senators introduced the bill, which is titled the Fairness for Struggling Students Act of 2015. One lawmaker stated that relief is needed, as some young people emerge from college with debt that rivals a mortgage, and then must postpone other adult ventures such as buying a home or starting a family.
If the bill passes, it will only apply to student loans issued by private institutions. This makes up just 10 percent of the total volume of student loans, the rest of which would still fall outside of bankruptcy protection. However, for those individuals who hold private loans and are facing serious financial turmoil, a change in the law could bring much-needed relief.
Even those in California whose unmanageable debt includes government-issued student loans may still find relief through personal bankruptcy. While student loans will not be discharged within the bankruptcy process, a great deal of other unsecured debt can be eliminated. This means that there will be more money in the budget to cover both living expenses as well as student loan payments, making it easier to pay these obligations off and move forward.
Source: Fortune, "Following Obama's lead, Democrats propose bankruptcy option for student loans", Claire Zillman, March 12, 2015