Since the recent economic downturn, much attention has been paid towards the overwhelming amount of debt people have. Many claim it has contributed to the recession. And, as many Texas families know, one of the most common types of debt is student loan debt.
Usually, in a personal bankruptcy in Texas or anywhere else, this type of debt cannot be discharged. There are extremely rare exceptions. However, the Obama administration is arguing for a change in the bankruptcy laws to allow more of this type of debt to be discharged in bankruptcy in certain circumstances.
The administration has recommended that Congress pass a law that would make it easier for people to discharge outstanding student debt. However, the recommendation would limit the type of debt allowed to be discharged to those loans issued by private lenders. This would include approximately $150 billion of debt, which is about 15 percent of the current outstanding student loan debt. Government student loans, which make up the majority of college loans, would not be affected.
Private lenders argue that if Congress does adopt the administration's proposal it could lead to significant increases in interest rates due to the increased lending risk. They argue that students usually do not have many large assets, such as a home, and might therefore be tempted to dump their outstanding debt once they graduate.
However, Sallie Mae, which is one of the biggest private lenders in the U.S., said it would consider supporting such a proposal for cases in which a good-faith effort has clearly been shown to meet the student loan obligation.
If the administration's proposal results in a change in the law, it could allow some college graduates who become financially buried by their education loans to find some relief. This could make quite a difference; given the stagnant job situation recent college graduates are facing in Texas and elsewhere.
Source: The Wall Street Journal