CFPB Report Recommends Allowing Bankruptcy for Private Student Loans
On July 20, the Consume Financial Protection Bureau issued a 130-pge report on private student loans.
Student loans, whether they are federal or private in origin, are not dischargeable in bankruptcy. Federal loans offer flexible repayment options, like income-based repayment and public service loan forgiveness, that private loans do not offer. That makes private student loans the toughest kind of debts for consumers to deal with; they can’t get bankruptcy relief, and they don’t qualify for federal debt relief programs.
The CFPB report suggests that congress should revisit the question of whether private student loans should be eligible for bankruptcy.
It’s unknown whether or how congress will act on this recommendation, but if private student loans are eligible for bankruptcy in the future, our bankruptcy counselors will be ready to help those student loan debtors seeking bankruptcy protection.
Federal student loans, which make up the vast majority of education borrowing, are not included in this recommendation, and it’s unlikely that the bankruptcy eligibility of those debts will ever change.
The best option for those struggling with education debt is to address other financial obligations, like credit card debt. Eliminating those debts with the help of credit counseling will free up income to put toward paying off student loans.
Read the CFPB’s full report on private student loans here.
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