Obama Administration Backs Changes To Student Loan Bankruptcy Protections

Charlotte Bankruptcy Lawyer Bryan W. Stone of Arnold & Smith, PLLC answers the question “Can I get rid of student loans by declaring bankruptcy?”


The Obama administration has put its weight behind a recent proposal calling for changes to be made to bankruptcy rules as they relate to student loans. The plan, proposed by the U.S. Department of Educations, calls for a series of reforms to the student loan system, one of which would ease restrictions on when borrowers would be allowed to bankrupt student loan debt.


Graduation Cap Charlotte Bankruptcy Lawyer Mecklenburg Student Loan AttorneyThe proposal released by the Department of Education calls ballooning student loan debt a serious problem not only for students, but for the country as a whole. Student loan debt recently topped $1 trillion and the weight of that burden has caused ripples across the economy, with millennials less likely to change jobs or start new businesses, often constrained by high debt loads.


To help address the problems associated with sky-high student loan debt, the Department of Education has proposed that restrictions preventing most borrowers from bankrupting student loan debt be eased. Specifically, the recent proposal says that the bankruptcy process should be made easier for those with private student loans. The goal would be to essentially roll back many of the creditor friendly provisions of a 2005 federal bankruptcy reform law. These changes were implemented thanks largely to the lobbying of major private lenders and worked to create an impossibly high hurdle for most private student loan borrowers to have to clear before bankruptcy would be possible.


The Obama administration has stopped short of advocating for easing bankruptcy protections for all student loans. Instead, their proposal asks that Congress consider making bankruptcy easier for a certain subset of student loans. The Obama administration has said that enhanced bankruptcy protection should be denied to those private student loans that do not offer flexible repayment terms. The undersecretary of education, Ted Mitchell, said that while all other types of consumer debt are dischargeable in bankruptcy, student loans are a glaring exception and that this is something that legislators should seek to address.


Though the government is now pushing for some changes to bankruptcy laws, they are not in a hurry to ease the protections when it comes all loans, especially those serviced by the Department of Education. The government has asked that these protections remain in place, saying the government loans are not underwritten and already include generous terms, including allowing payments to be limited based on income. Private student loans, on the other hand, often lack flexibility and trap borrowers in a state of financial distress by failing to provide alternate payment arrangements.


Consumer advocates and some legislators, mainly Democrats, have been pushing for changes to the student loan bankruptcy exception for years. Though this proposal doesn’t go nearly as far as many critics of the existing system would have liked, it’s an important step in the right direction. After all, this represents the first time any presidential administration has recognized the need for change when it comes to how student loans are treated in the bankruptcy process. Change may be slow and it may be incremental, but some change is still better than none.


If you find yourself needing the services of a Charlotte, North Carolina bankruptcy attorney, please call the skilled lawyers at Arnold & Smith, PLLC find additional resources here. As professionals who are experienced at handling all kinds of bankruptcy matters, our attorneys will provide you with the best advice for your particular situation.



About the Author

Kyle Frost Bankruptcy Lawyer Student loan attorneyKyle Frost joined Arnold & Smith, PLLC in 2013 where he focuses his practice on all aspects of civil litigation and bankruptcy, including: Chapter 7, Chapter 11, Chapter 13, home loan modifications and landlord-tenant issues.

Born and raised in upstate New York, Mr. Frost attended the University at Albany on a Presidential Scholarship, graduating magna cum laude with a double major in Political Science and Sociology.  He went on to attended Wake Forest University School of Law in Winston Salem, North Carolina.

Following college, Mr. Frost spent over a year teaching English in South Korea. He worked in a private school in Seoul developing curriculum, English programs, and educating both children and adults that were interested in learning a new language.

In his spare time, Mr. Frost enjoys homebrewing, fishing, and travelling.







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