A bad idea made worse

Once something become enshrined in law, it can be difficult to dislodge. Take the sections of the Bankruptcy Code that prevent student loans from being discharged. These provisions date to 1978, and were based on some newspaper stories that suggested that some students who obtained student loans planned to use bankruptcy to discharge their debt after graduation to avoid having to pay the loans back.

But there was never really any crisis, and the news reports were that suggested there were significant numbers of former students using the bankruptcy code in this manner were either false or unsubstantiated. One report found that perhaps 0.8 percent of borrowers had obtained bankruptcy discharge with student loans and little or no other debt.

So, with less one percent of student borrowers in this position, Congress still left provisions in the Bankruptcy Act that made student loans different. Recently, in 2005, the Bush Administration expanded the non-dischargeability standard to all student loans.

Ironically, these provisions may have made the real student loan crisis worse, because it encouraged lending to students who may have the least ability to pay. The financial industry was not concerned, because they knew that their reckless lending behavior would have no downside for them because the loans could not be discharged.

Student loans can be discharged if you meet the standard of extreme hardship. While this is difficult to meet, ironically, the horrific economy that resulted from the excesses of the financial crisis of 2008 have left many debtors in circumstance so dire that of those who have attempted to eliminate their student loan debt in bankruptcy, almost 39 percent obtain a discharge.

If you have been paying on student loans for years, are not making any progress and medical conditions or other circumstances limit your ability to repay your loans in the future, you may want to speak with a bankruptcy attorney and discuss your options.

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