• 04
  • November
    2011

In our last post, we began looking at the Obama administration's new efforts to ease burdens for borrowers of student loans. The plan, which will be available as soon as this coming year, will allow borrowers to reduce monthly payments, consolidate loans and discharge their debts sooner.

Student loans are a particularly difficult type of debt to discharge in bankruptcy, and there is no doubt that the new measures will be welcome by current students and recent grads. Concerns still remain, though, that the plan doesn't do enough to relieve the burden among student loan borrowers.

One issue that remains to be addressed is the number of borrowers, not current students or recent grads, who are struggling or in default on their loans. Many of them are graduates of for-profit colleges. According to sources, a disproportionate number of graduates of for-profit colleges end up defaulting on their loans, so much so that consumer advocates consider it a consumer fraud issue.

Those with private loans also cannot expect any relief from the new measure. Private loans carry less protection than federal loans, and often have variable interest rates. Rep. Steve Cohen, D-Tenn., is among a group of Congress members who are currently attempting to allow students with private loans to declare bankruptcy. The right to declare bankruptcy on private loans was removed in 2005 under the Bankruptcy Reform Bill. Cohen has introduced a bill in the House of Representatives, but the bill has not yet garnered any Republican support, which means it will have a hard times getting through.

Many agree that, while the new measure will be of some assistance to some students, the quickly rising costs of education are the real problem.

Source: CBS News, "Who will benefit from Obama's student loan plan?," Lucy Madison, October 26, 2011.