Students May Get to Discharge Student Loan Debt in Bankruptcy

If the Fairness for Struggling Students Act becomes law, private student loans could be included in a personal bankruptcy.

As student loan debt reaches record highs, many students are getting buried by their loan payments before making it into the job market. Tuition and the exploding growth of private for-profit schools has led to many students graduating with a $25,000 or greater debt to carry.

Most government-backed loans are exempt from being discharged in a bankruptcy. This is true with government-guaranteed student loans, and the Struggling Students Act will not change the current laws related to federal student aid. However, the proposed legislation would allow individuals to discharge student loan debt from non-government and for-profit lenders.

The ability to discharge student loan debt is nothing new. In fact, the inability to discharge for-profit education debt is only seven years old. In 2005, the Bankruptcy Abuse Prevention and Consumer Protection Act was passed and signed into law. Upon closer examination, the law did more to protect banks and lenders than consumers.

It was with the Bankruptcy Abuse Prevention and Consumer Protection Act that borrowers lost the right to include their for-profit student loan debt in a chapter 7 bankruptcy. Three years after that legislation was passed, the employment rate and recession put a strain on many people,e which was only magnified by having to carry excessive student loan debt, even after a successful bankruptcy.

The bill does not try to simplify or expedite the bankruptcy process, but rather allow for-profit student loans to be discharged in a personal bankruptcy, as they were prior to 2005.

For the bill to become a law, it would have to be ratified between the U.S. House and Senate. The bill is still being debated in the Senate, and has not yet been put to a vote. Should the Senate pass the bill, it will go to the U.S. House of Representatives and if passed, be sent to President Obama’s desk to sign.

Neither President Barack Obama, nor Republican Presidential Candidate, Mitt Romney endorsed the bill. Until a reversal of the 2005 restriction on for-profit student loan debt is successfully enacted, individuals will be unable to discharge the burden of their student loan.

O. Reginald (“Reggie”) Osenton is the Owner and President of Osenton Law Offices, P.A. If you need a Brandon bankruptcy lawyer, Tampa bankruptcy lawyer, or Tampa bankruptcy attorney, call 813.654.5777 or visit

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