In 2005 congress changed the law to exclude student loans (private or public) from bankruptcy protection, meaning that it is almost impossible to discharge your student loan by filing for bankruptcy.
Now, in light of the recent student lending scandal, congress is taking another look at that law, and legislation has been introduced that would extend some measure of protection to students who borrowed from private or non-profit lenders.
From Credit Slips:
Senator Dick Durbin made what appears to have been the first response to these hearings. He has introduced S. 1561. Under Senator Durbin’s legislation, only student loans “made, insured, or guaranteed” by a governmental unit would be nondischargeable in bankruptcy (absent a finding of undue hardship). The legislation would allow loans from private or nonprofit lenders to be dischargeable in bankruptcy. The discharge of loans from nonprofit student loan lenders would be a change from the pre-2005 law and was prompted, as I understand it, from reports that for-profit private lenders were sometimes working through nonprofit organizations. Also, as I read the legislation, it would make loans from state, but not private, universities and colleges nondischargeable.
Good news for some of our readers who have had a lot of trouble with private loans. There are people literally living off the grid, hiding from student lenders because they can’t make enough money to make their payments. It’s scary! —MEGHANN MARCO