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Article in Bankruptcy Law Network

Student loans come in various forms…. which are the best loans for a new student? Are private loans or federal loans better? Many new graduates cannot find good-paying jobs and the lack of high paying jobs creates a problem when it comes to paying back student loans. What if that person has to consider bankruptcy? Well, we can start with the proposition that no student loans are dischargeable in bankruptcy without undue hardship.

Let’s say that person wanted to go to college to pursue a degree in the area of law enforcement. Under the current Department of Education repayment guidelines, that person may be able to discharge the unpaid portion of their student loans after a ten (10) year income-based repayment plan

However, if the same person takes out private student loans for the same amount of money, they may be still repaying those debts well beyond the ten (10) year period. Now, here comes the hard part. What if Congress decides to change the law and make the private student loans dischargeable in bankruptcy?

If a person takes out federal loans and Congress makes the private loans dischargeable in bankruptcy, the consumer loses the bankruptcy protection if they need it. If the consumer takes out private loans in the anticipation that Congress is going to make the private loans dischargeable in bankruptcy, and then Congress doesn’t act, the consumer loses because private loans do not offer the many options offered by the Federal Student Loan Program.

If the entire obligation is federal or federally guaranteed, borrowers are eligible for either a hardship deferment or an Income contingent repayment plan (ICRP). A workout agreement can be calculated at the Federal student loan website. This is not possible when private student loans are thrown into the mix.

The central problem for many borrowers is that there are no comparable workout agreements available for private student loans. Private student loans were made non-dis-chargeable except in cases of undue hardship and the provision was retroactive, so earlier loans, incurred when dis-charge ability in bankruptcy was a more accessible option, abruptly became non-dischargable for many borrowers.

This problem was created by an act of Congress and would require an act of Congress to remedy. The courts will be seeing many more cases of this nature, given the recent proliferation of private student loans and the growing numbers of families in serious financial trouble because of the depressed housing market and rising unemployment.

Carolyn Secor is a Clearwater bankruptcy attorney and Clearwater foreclosure attorney serving Palm Harbor, New Port Richey, Oldsmar, Tarpon Springs, Seminole, St. Petersburg, and the Tampa Bay area.

If you would like more information on our practice, please consult our website at or call 727-335-7151.