At the present time, student loans are not dischargeable in bankruptcy, unless the student sues the student loan company, in bankruptcy, and proves to a bankruptcy judge, that repaying the student loan would cause the student/debtor and her family undue hardship. This is quite expensive for the average student to do so these suits are a rarity in bankruptcy, says Wesley Scott. This leaves the student saddled with the student loan debt after a bankruptcy discharge.
Several ideas were discussed with Senator Franken’s team. One option would be to have student loans dischargeable in bankruptcy. According to Scott, currently, there is a bill pending in Congress to do just that. Democratic Representative John Delaney from Maryland has sponsored H.R. 2366 – Discharge Student Loans in Bankruptcy Act of 2017 which would do what the bill title says- discharge student loan debt in bankruptcy.
Another option would be to make student loan debt a priority in bankruptcy so that student loan debt would receive distributions before general unsecured creditors like credit cards and unsecured loans. Yet, another option would be to have student loans dischargeable in Chapter 13 Bankruptcy (a government sponsored debt consolidation plan) where students would receive a student loan discharge after 7 years of repaying what the student can afford to pay to their creditors and student loans.
At the present time, while student loans are not dischargeable in bankruptcy, Chapter 13 Trustees are successfully arguing that debtor’s cant repay student loan debt, while in Chapter 13 Bankruptcy, because repayment of student loan debt is prejudicial to other unsecured creditors. This results in student loan interest compounding, leaving the student debtor with much larger student loans when the Chapter 13 began. How unfair to say student loans are not dischargeable and yet say you also can’t make a payment on the student loans while in the Chapter 13 Bankruptcy? And yet, that is what we do to our kids.
Senator Franken’s office has told me that they are committed to finding a solution to the overwhelming student loan debt crisis facing Minnesotans, Scott said. According to Scott, who works in the trenches and sees overwhelming student loan debt on a weekly basis, the solution to the student loan debt crisis cannot come fast enough for many Minnesotans.