Nearly three million Americans currently have student loan debt, with estimates of the total amount owed reaching as high as $1 trillion. Because of changes to federal bankruptcy law in 2005, student loan debt is not dischargeable in bankruptcy except in very limited circumstances, although a bill pending in Congress seeks to expand those circumstances. As students at Los Angeles-area colleges and universities are graduating and perhaps preparing for graduate school, and as high school seniors are pondering college in the fall, the state of student loan debt, and the options of student loan debtors, bear scrutiny.
Student Loans and Bankruptcy Law
Federal bankruptcy law specifically excepts student loans from discharge in bankruptcy, unless doing so would cause “undue hardship” for the debtor or the debtor’s family. 11 U.S.C. § 523(a)(8). Despite this, an increasing number of students are filing for bankruptcy protection when they find themselves unable to repay their student loans, according to a report by the Consumer Finance Protection Bureau (CFPB). “Private Student Loans Report” at 72 (CFPB, Jul. 19, 2012). By the end of 2011, nearly $1.5 billion in student loans, about 1.3% of the total, were involved in bankruptcy proceedings. Id. Continue reading