Illinois Senator Advocates for Discharge of Student Loans in Bankruptcy

As the cost of higher education continues to rise, more and more students are burdened with large amounts of student loans after graduating. Currently, it is much more difficult to discharge student loans in bankruptcy than many other types of debt. However, Illinois Senator Dick Durbin (D) is hoping to change that.

In particular, Senator Durbin is focused on providing bankruptcy relief to those who borrowed student loans from private lenders as opposed to federal loans. He introduced a bill that would abolish a 2005 provision which made student loans issued by private lenders non-dischargeable under most circumstances.

"While the overall growth in student loan indebtedness is troubling, the most pressing concern is private student loans," explained Durbin. Although government loans have options for distressed borrowers like income-based repayment, many private loans do not. Student loan debt in the U.S. has grown significantly, and is soon estimated to reach $867 billion, surpassing total credit-card debt.

Private lenders seem to be doing well even as the economy has struggled. For example, the largest lender of private student loans SLM Corp (known by the name Sallie Mae), made $2.7 billion financing private student loans in 2011. This was a 19 percent increase from 2010, and things look even better for the company in 2012, as it plans to originate $3.2 billion.

Opponents of the measure argue that reinstating the ability to more easily discharge student loans in bankruptcy would result in higher interest rates for all student loan borrowers. Instead, they argue that the issue of tuition inflation needs to be addressed.

Source: Bloomberg, Durbin Urges Private Student Loans Be Discharged in Bankruptcy, Janet Lorin, 20 Mar. 2012

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