01 Jul Student Loans and Bankruptcy: The new predatory lenders.
Since the changes to the Bankruptcy Laws in 2005, student loans and the dischargeability of student loans in bankruptcy have really become an issue in the spotlight. As we all know, there is a difference between federal student loans and private student loans. Now, private student loans have become one of the most profitable sectors of the student loan market. Additionally, and in response to the 2005 changes to the Bankruptcy Code, private student loans are one of fastest growing segments of the market because private student loans are now non-dischargeable in bankruptcy.
Many private student loans have interest rates and penalties that make the credit card markets look tame. Although the majority of students find a way to repay their obligations, the student who cannot are left with debts that may be impossible to repay and no relief in the bankruptcy courts.
Recently, Senator Dick Durbin (D- Ill) looked at the issue and proposed legislation that would put the private student loan lenders on the same level as unsecured creditors. Durbin agrees with many consumer advocates that there is little to no risk for private student loan lenders. Private Student Loans can, and will, be given to individuals who will not be able to afford them. Additionally, these loans will be given out at institutions with low graduation rates and low job-placement rates. Durbin’s legislation want to curb this behavior before it gets out of hand.
On a personal note, I agree that students who borrow have an obligation to re-pay their student loan debt. On the other hand, as a bankruptcy attorney, I see how changes in the lives of my clients may make the possibility of repayment impossible. I truly hope that Senator Durbin’s proposed legislation picks up steam
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