Discharge of Student Loans

Steve Cohen, a Democratic representative from Tennessee, published an article entitled “Allow Private Education Loan Debts to Be Erased in Bankruptcy: Struggling borrowers should be able to discharge their private student loan debts” on the National Association of Consumer Bankruptcy Attorneys’ website (click HERE).

We agree with Mr. Cohen’s premise that it is bad public policy to make student loans difficult to discharge in bankruptcy. Mr. Cohen argues that proving undue hardship requires resources most debtors in bankruptcy cannot afford, sets an ambiguous standard that is hard to exceed, and the protection encourages banks to make riskier loans.

At this time, discharge requires that the debtor initiate legal action to prove that repayment would impose an “undue hardship” – a vague standard unevenly applied. The debtor is cash / credit poor and banks cash / credit rich. The net effect is to prevent borrowers from discharging private student loan debts.

After the financial meltdown in 2008 – 2009 and the subsequent failure of our legislators to fix the underlying issues, does it make sense to encourage bankers to make risky loans or do we want the bankers to make solid loans and allow people who were once good credit risks to have the relief they deserve if they fall upon unexpected hard times?

We wish Mr. Cohen well in his efforts to make the banks accountable when risky loans fail, to encourage lenders to make sound loans and to provide people with relief when they need it due to no fault of their own.

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If you are in Kentucky, then I’d recommend that you call my office at 502-587-1950 or 502-509-1490 to schedule a consultation if you have an agreement, parenting schedule or court order to discuss your options.

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