Wednesday, November 4, 2015

Discharging Student Loans in Bankruptcy May Become Easier

Last month the Department of Education issued a report proposing two key changes in the way student loans are treated in bankruptcy.

The report was in response to President Obama’s March 10 Presidential Memorandum on a Student Aid Bill of Rights, which sought recommendations on student loan laws ranging from servicing to bankruptcy.

Read the full report.

Borrowers Should not be Defaulted Because a Co-Signor Files Bankruptcy


The first proposal seeks to prohibit servicers from placing borrowers in default automatically because their co-signor dies or files bankruptcy. The report reasons that current borrowers should not be driven into “financial ruin” due to circumstances outside their control.

Private Student Loans Should be Dischargeable in Bankruptcy

The second proposal suggests making private student loans dischargeable in bankruptcy. The report reasons that unlike federal loans, private student loans often don’t provide borrowers any income-based repayment options.

Related article: How to Discharge Student Loans in Oregon Bankruptcy Courts

--
Michael Fuller is a partner at Olsen Daines in Portland, Oregon and a consumer law adjunct professor at Lewis & Clark Law School.