President Obama Considers Making Student Loan Debt Eligible for Bankruptcy

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The total student loan debt in the United States is in excess of $1.3 trillion, thus, it’s understandable why lawmakers are under considerable pressure to allow borrowers to include their student loan debt in their bankruptcy filings.

Unlike credit cards, medical bills, personal loans, and mortgages, student loans cannot be included in bankruptcy – at least not yet.

Since the federal government is the lender or guarantor on approximately 90% of the student loans, President Obama is considering making it so that student loan debt can be included in bankruptcy.

This policy proposal has not been well-received by private lenders, and has been met with skepticism from Wells Fargo, Discover Financial and Sallie Mae, all who provide student loans.

The Federal Reserve reports that the average student loan debt is in the ballpark of $30,000 or less – a number that is rather manageable, and costs about the same as many auto loans.

Of course, there are horror stories of $100,000 plus debt loads, especially as they pertain to borrowing for graduate studies, or people who significantly prolong their time in college.

According to President Obama, his plan is to ensure that across the board, younger people can afford to go to college and after graduation, aren’t so burdened with debt that they can’t do anything else.

While this seems reasonable, opponents don’t want college students to have bankruptcy as a part of their financial plan after college. They also believe that interest rates on student loans would increase, even if just 25% of the 40 million people with student loans were to default on their debt.

Unfortunately, college debt has to be paid at a time when a young person’s earnings are at the lowest.

So, we’ll have to wait and see whether the government decides to maintain the status quo, make student loan debt eligible for bankruptcy, or extend repayment schedules so payments are more manageable for young college graduates.

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