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Should student loan or bankruptcy laws see changes?

The "Occupy movement" seems to have faded somewhat from the national press. One of the issues that arose at the height of the daily protests was a call for student loan debt reform. Student loan debt has saddled more and more of the nation's youth as college tuition continues to skyrocket. The president recently began calling on colleges and universities to reign in the overall cost of education.

In November, this blog reported that overall student loan debt has exceeded credit card debt in America. And although the Occupy movement may be fading, the issue of student loan debt continues to resonate in the national dialogue. Generally, student loans are not dischargeable in bankruptcy. A debtor must show undue hardship to avoid the general rule. Showing undue hardship may in some cases be possible, but the burden is high.

Some critics of the current laws governing student loans wish to see some form of change. Some advocate for a modification of the bankruptcy laws to allow student loans to be dischargeable. Others seek for reforms in the lending practices.

A recent story in Forbes described the lending system for higher education as structurally predatory. Part of that analysis is based upon the bankruptcy code. The author says that because student loans are treated differently than other debts in the bankruptcy laws, statutes of limitations on collecting debts and other consumer protection laws, the structure of the system provides lenders with enormous power over debtors.

Many advocates say that laws governing student loans should be modified to better protect our nation's students. As it stands, graduates suffering under a mountain of past due payments on student loans can in some cases benefit from the bankruptcy laws, at least in creating a chapter 13 bankruptcy plan that can allow a debtor to make up ground on the past due payments, while also addressing other debts in the overall plan.

Source: Forbes "Should Student Loans be Dischargeable in Bankruptcy?" Peter J. Reilly, Dec. 29, 2011

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