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If you’ve read my previous posts about bankruptcy and private student loans, you’ll remember that one of the most significant problems with private student loans is that with rare exception, they cannot be discharged in bankruptcy. While many other types of debt (such as credit card debt) can be eliminated through bankruptcy if you are ultimately unable to pay, you will probably still be obligated to pay back your private student loans even if you successfully declare bankruptcy. These loans can thus haunt student borrowers for their entire lives (or even beyond, but that’s another story).
This wasn’t always the case. Before 2005, it was easier for student loan borrowers to include private student loans in bankruptcy discharges. Bankruptcy reform legislation, however, passed by Congress in 2005 and signed by President George W. Bush, drastically changed bankruptcy law’s treatment of private student loans. Suddenly, student loans became one of the most secure forms of debt for commercial lenders. U.S. Senators Dick Durban (D-IL), Sheldon Whitehouse (D-RI) and Al Franken (D-MN) have recently introduced legislation to restore bankruptcy protections for private student loan borrowers.
The bill is supported by other members of Congress as well as over 35 groups and organizations including the American Council on Education and the National Consumer Law Center. But given today’s political climate and our divided government, does this bill have any chance of passing? Read more here:http://durbin.senate.gov/public/index.cfm/pressreleases?ID=f7c84e6c-f2ac-4ee5-b466-f461b0f0de8a