Senate Proposes Bankruptcy Option for Private Student Loan Debt

February 5, 2013 Posted by kingcade

Last Wednesday, Sen. Dick Durbin unveiled a proposal that would give student loan debtors an option for bankruptcy. The proposal targets former students who have loans through private lenders such as Sallie Mae, Wells Fargo Corp. and Discover Financial Services. The proposed bill does not apply to federal education loans, which make up more than 80% of the $1 trillion in outstanding student loan debt.

Currently, Federal law prohibits private or federal student loans from being discharged in bankruptcy court, except in rare cases. Consumer advocates believe this to be the reason that many borrowers are unable to unload their student debt. In many cases, student loan debt is so high; there is little hope the borrowers will ever repay them. Other types of major consumer debt including mortgages, credit cards and auto loans are all dischargeable in bankruptcy court.

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