Discharging Student Loans in Bankruptcy IS Possible – But Should It Be So Hard?

It’s no secret that I’m a huge proponent of higher education, even if that means taking on debt. I, in fact, took on a fair amount of debt to attend graduate school – almost $25,000 just in principle. Thankfully, I’ve paid off over half of my student loans and plan to have them paid in-full in about 18 months. My situation seems to be unique, though, as millions of Americans my age are struggling to make their student loan payments.

Whenever the student loan “bubble” is discussed among politicians or in the media, the question of whether or not it should be possible to discharge student loans in bankruptcy invariably comes up. Currently, it is possible to discharge student loans in bankruptcy – it’s just very, very difficult. Take a look at the infographic below for some scary stats about student loan debt and just how few bankruptcy filers are able to have their student loans included in their discharged debts:

Can Claiming Bankruptcy Discharge Student Loan Debt?
From: OnlineColleges.net

I understand the basic point behind making it really difficult to include student loans in a bankruptcy – since a bankruptcy takes seven years to fall off of a credit report, the concern is that people will graduate from college at 22 or 23 with massive student loans, file bankruptcy, then just wait until their thirties to try to buy a house or a new car. In other words, student loan providers (mostly the federal government) would end up having to write off millions of dollars in bad debt while the students got an education for “free” (although the consequences of bankruptcy certainly aren’t what I would call “free”).

But recent college graduates today are faced with some unique challenges: many had to borrow a lot for college because the the cost of higher education is rapidly outpacing inflation, coupled with the fact that the economy continues to improve very slowly, which makes finding a job difficult. I hate to sound so negative, but this double-whamy will set many Millenials back significantly, which has implications beyond just our own personal comfort and ability to build wealth. Many of my peers are unable to buy homes, unable to spend money on major consumer products (like cars), and are unable to engage in smaller, more regular forms of consumer spending, like going to restaurants, bars, going shopping for clothes, etc…all because they’re making ridiculously high student loan payments every month. This is a drag on the overall economy, which could definitely use the boost that additional discretionary spending would bring.

So do you think it should be easier to discharge student loans in bankruptcy? Explain!