Student Debt Solutions

Smith Law Group Blog

Sharing thoughts on the latest news about student loan debt relief and bankruptcy.

ABI Recommends Breaking the Cycle Student Loan Poverty

Student loan debt is a burden for many, and unlike most types of debt, is very difficult to discharge in bankruptcy (although not, as many believe, impossible).  Currently, government and most types of private student loans cannot be discharged absent a showing of “undue hardship.”  That burden may be getting lighter in the wake of the ABI Commission on Consumer Bankruptcy’s recent recommendations of changes to bankruptcy rules.

The commission consisted of prominent judges, academics, and lawyers from both the debtor and creditor sides of the bankruptcy community. The commission was set up as an independent entity to avoid the appearance of bias towards either debtor or creditor. This report comes at a time when many judges are already looking for creative ways to treat overwhelmed borrowers more compassionately in bankruptcy.

The ABI made 3 key recommendations for how to treat student loans in bankruptcy:

1.     Make all private student loans dischargeable at any time;

2.     Make government student loans dischargeable after 7 years;

3.     Allow government student loans to be discharged before 7 years where the debtor can prove “undue hardship”;

Although these remain only suggestions and have no force of law, the ABI is a highly respected organization and its findings may well push both Congress and the Department of Education towards rethinking the non-dischargeability of student loans.  In fact, these recommendations come in the wake of the Department of Education seeking comment on how to treat government student loans in bankruptcy

Ultimately, the commission is recognizing that student loan debtors often find themselves in what Judge Perris calls the “cycle of hopelessness” and they are recommending practical solutions to move those debtors and their creditors forward while acknowledging both of their rights under the laws. This commission report and its recommendations are an excellent step towards reducing the effect of pushing debtors towards further poverty and as a result, freeing up economic purchasing power.

To access the full report, please click here.

To access a summary of the key findings, please click here.

Image by  Todd Christensen  from  Pixabay