This month, 13 senators cosponsored the “Fairness for Struggling Students Act of 2015.”
Through the passing of this bill, these senators intend to remove the bankruptcy immunities that have made private student loans impervious to being discharged through the process of bankruptcy.
I’ve always held that applying bankruptcy immunity to private student loans is unfair, since they are far less borrower-friendly than federal loans. Allow me to expand a bit on why I believe federal student loans should have bankruptcy immunity, while private loans should not!
Why should Federal Student Loans have Bankruptcy Immunity?
Federal loans should (and do) have bankruptcy immunity, i.e. they can’t be discharged through bankruptcy, because of the huge amount of repayment options that they offer.
In addition to forgiveness potential, you have years of deferments, forbearance, interest only options and consolidation, many of which ALL borrowers qualify for.
In addition, federal loans can lower your payment based on your income, do not default until they are 9 months past due, and they can be rehabilitated not once, but twice!
So, you can see where the feds would take the attitude that bankruptcy is not suitable for these type of loans. This makes sense.
Why shouldn’t Private Student Loans Have Bankruptcy Immunity?
Private loans presently have bankruptcy immunity, and I believe they shouldn’t.
With the exception of maybe a few months of forbearance, private loans have none of the repayment assistance options that federal loans do.
Private loans default in as early as 4 months and have no rehabilitation options. Plus, none of the forgiveness programs or income driven programs are available for these types of student loans.
As a result, it makes no sense that these loans should benefit from bankruptcy immunity. This is why the new bill proposed by the 13 senators makes sense, and why the sheer suggestion that this should be happening is a very good thing!
Back to the Bill
To follow the changes and updates on this bill, click here. As the site explains, a bill must be passed by both the House and Senate, and then be signed by the President, to become law, and you can receive alerts in your inbox regarding what’s happening with this process.
More importantly, to discover how these, and other, recent student loan legislation changes apply to your student loan portfolio, click here to schedule a free consultation with me.
After 17 years of working with student loans, I’d be glad to make sure you’re in the loop about what bills have been implemented and can benefit you, as well was what recent legislation is not likely to be implemented, given similar bills that have been proposed and rejected in the White House.
As always, your questions are welcome at info(at)student-loan-consultant(dot)com!