Can filing for bankruptcy dissolve my student loan debt?
As it stands today, you cannot have your student loan debt reduced or eliminated through bankruptcy proceedings. This was the law of the land for publicly funded student loans prior to 2005, but in 2005 the law was extended to make it so that you could not extinguish any student loan debt by filing for bankruptcy.
Proposed Law Changes
Since 2005 there have been several attempts to modify this law to its pre 2005 wording. As a result this would allow students that received private student loans to have the debt extinguished through a bankruptcy. The student who had publicly funded student loans would still not be able to discharge their debt.
This has become an increasingly visible issue in recent years as so many graduates are not able to find work that will enable them to meet their financial obligations. It was found in 2010 that over 50% of graduates were not able to find work and that many of those that did find work were significantly underemployed given their skills and education.
All of this is a problem as the society at large adjusts into a new economy where formerly the cost of higher education was automatically rewarded with a high paying career where one could manage the debt. What we find now is that many who incur their debt for undergraduate degrees find themselves fighting for entry level positions with those that do not have the same educational background nor the burdensome educational debt. As a result the one with the debt is under much more financial stress and burdens than the one without the debt. Now of course studies show that the one with the undergraduate degree will out earn the one without the degree over time, as the one with the degree surpasses the one without, but this does not normally occur until 3-7 years into a career, making the first 3-7 years very difficult for the one carrying the burden of significant student loan debt.
It is possible that instead of disallowing discharge of student loan debt through bankruptcy that those with undergraduate educations be allowed to defer the repayment until they are 5-10 years into their careers. This would give them ample time to become established and give them time to realize the increased earning capacity that is common with those that have college degrees. This is one alternative to forcing those that are under financial stress into bankruptcy and even into overly stressful situations when they should be working on their careers. It is as if society wants to put extra burdens on the best and the brightest, making life even more difficult for them when they are just starting out.
No matter what solution comes along, one thing is for certain, the laws will be changed in favor of giving relief to those that are suffering under substantial student loan debt and yet find themselves looking for work in tough economic times. Bankruptcy discharge may not given to everyone, but allowing for payment deferrals and other creative means to ensure repayment is certainly a step in the right direction.
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