White House Weighs Decision To Enable Discharge Of Student Loan Debt Through Bankruptcy

Friday, July 20, 2012 09:40
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White House Weighs Decision To Enable Discharge Of Student Loan Debt Through Bankruptcy

Tags: debt | economy | investing

As the student debt problem continues to weigh on young people’s futures, the White House is considering making it possible to discharge at least a portion of that debt in bankruptcy filings. The ruling would affect loans issued by sources outside the government and still would not affect government issued student loans.

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That would include only about 15% of current outstanding debt issued by Sallie Mae and Wells Fargo & Co. The 2005 law prohibiting student loan inclusion in bankruptcy filings currently only allows the discharging of such debt in extraordinary circumstances.
 
Private lenders warn that the move could cause interest rates to spike as a result of increased loan losses. Many students do not have assets like houses from which to recover the losses. For those who have made a good-faith effort to repay the debt, Sallie Mae supports reform that would allow the discharge through bankruptcy.
 
The student debt issue is one that filters into the economy, hampering young people from becoming productive business owners and wage earners because of the enormity of their debt loads and the length of time it takes to pay the debt off since students are just starting out and have few resources.

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