Bankruptcy Should Be an Option for Some Student Loans: Report

August 20, 2013
Huffington Post  
student loan news

A new report by the think tank Center for American Progress (CAP) argues that Congress should create new classifications for both federal and private student loans and allow them to qualify for discharge in bankruptcy. The report calls for Congress to classify "Qualified Student Loans" as loans that would essentially be protected from bankruptcy but would have reasonable repayment terms for students in college programs with good employment expectations.

A Qualified Student Loan would have interest rates that do not exceed established caps, would include deferment and forbearance options, and would allow for income-based repayment. The educational institution involved also would have to meet minimum standards for completion, such as graduation rates, as well as job placement and evidence-based salary projections. Under CAP's model, non-qualified student loans could be discharged in Chapter 7 bankruptcy after a specified waiting period. The report suggests that the Qualified Student Loan model would push colleges and universities to improve their academic programs and ensure that graduates get real jobs in their fields of study. The Consumer Financial Protection Bureau reports that more than 7 million borrowers are in default on federal or private student loans, and only about 40 percent of federal loan borrowers are currently repaying their debt.
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