- August 28, 2013
- Posted by: Richard Feinberg
- Category: Student Loans
Student loan debt in America has hit $1 trillion in the past years, rapidly becoming one of the leading sources of debt in the country. Borrowers faced with high student loan debt can feel as though their backs are against the wall, since it is one of the few kinds of debt that are not dischargeable through Chapter 7 or Chapter 13 bankruptcy filing, according to a bankruptcy lawyer. However, new proposals may change the way student loan debt is handled in bankruptcy, making the road less painful for those unable to make their payments through financial hardship.
Private Loans May Be Dischargeable Soon
Congress has proposed new legislation which would result in many private student loans being dischargeable through bankruptcy, according to a bankruptcy lawyer. This would not affect federally-backed loans, which account for a large percentage of student loan debt, but are flexible in their repayment terms and fixed in their interest rates. Private loans have been a source of some debate, often carrying high interest rates and hidden fees that can make the cost of education prohibitive without the student even really being aware of it.
A New Port Richey bankruptcy lawyer says that making such private loans dischargeable in bankruptcy – thus making them the equivalent of credit card debt – would be a big step in alleviating some of the student loan debt burden that grads face in today’s bleak job market. Government student loans have built in flexibility that allows graduates facing financial hardship to defer or make alternative payment arrangements; many private loans offer no such flexibility. Government-backed loans offer a fixed interest rate of about 2% or less; private loans can carry interest rates from 7% to upwards of 15% or more, according to a bankruptcy attorney.