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CFPB recommends revisiting student loans in bankruptcy

Former Ohio Attorney General Richard Cordray now heads the Consumer Finance Protection Bureau. The CFPB and the Education Department recently looked into student loan debt in the United States. Cordray recently said in a written statement that the study findings "reveal that students were yet another group of consumers that were hurt by the boom and bust."

The new government report says that too many students piled up student loan debts at the hands of "subprime-style" loans in the private student loan market. Cordray says that many students are buried in debt from loans that they "did not understand and cannot afford."

Education Secretary Arne Duncan says that "Subprime-style lending went to college and now students are paying the price." This blog has previously discussed several troubling issues surrounding student loan debt, including prior worries from economists that student loans may become the next bubble, like that found in the housing market, due to subprime loans.

Now Richard Cordray recommends that Congress rethink student loan debt. The leader of the CFPB urges lawmakers to require schools to certify that private student loans offered to students do not exceed the borrower's needs. Cordray is also asking Congress to revisit the 2005 bankruptcy code revisions that make it more difficult to discharge private student loans in bankruptcy.

The CFPB was created by Congress and has regulatory authority under the Dodd-Frank Act. However, Cordray has not indicated what the agency may do to regulate the private student loan industry under its government authority.

Private loans differ from federal loans, and the recent CFPB and Education Department study does not appear to address the high number, and overall balances, carried by Americans on federal student loans. The Education Secretary recommends that Congress require schools to ensure all federal student loan programs are exhausted before students are offered private loans.

Many students and graduates may have other types of debts in addition to student loans. In some cases, a bankruptcy proceeding may allow a graduate to relieve other debt to make the student loans easier to service. In some cases, bankruptcy may also help a debtor become current on some forms of delinquent debt.

Source: Bloomberg News via, "Consumer finance agency says college students hurt by 'subprime-style' lending, urges bankruptcy option for debt," July 20, 2012

Our firm handles bankruptcy cases for Ohio residents. For more information on our firm, please visit our Cincinnati chapter 13 bankruptcy page.

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