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New bill aims to change bankruptcy law regarding student loans

College students in Alabama face many financial challenges upon graduation, challenges that are often compounded by crushing student loan debt. Under current law, student loans usually cannot be discharged through bankruptcy. However, a bill recently introduced in the United States Senate aim to have that changed.

A bill has been introduced that endeavors to assist those struggling with overwhelming student loan debt. Under s. 114, the "Fairness for Struggling Students Act of 2013," a debtor would be able to discharge privately-issued student loans through the bankruptcy process. A second bill, the "Know Before You Owe Act of 2013," has been also introduced in the United States Senate. Under this bill, schools would have to provide students with counseling before they take out a private student loan. Both bills had been introduced in the Senate last year, but died after being referred to committee.

Debtors facing a personal financial crisis may wish to discharge their student loans by filing for bankruptcy. To do so they must show that the burden of repayment imposes a severe hardship on them. This is a very high standard that is nearly impossible to meet. However, there are other options for debtors in need of student loan debt relief.

Sometimes a debtor can qualify for a student loan deferment if they are unemployed, are going back to school or have an economic hardship. Under a deferment, the debtor will no longer have to make student loan payments for the length of the deferment. Student loan payments can also be postponed through a student loan forbearance. However, interest continues to accrue on student loans in forbearance. In certain instances, such as if the borrower becomes permanently disabled and cannot work, student loans may even be cancelled.

It is yet to be seen what, if any, steps will be taken in the Senate to pass these bills. Until then, debtors are not without options if they need assistance paying back their student loans.

Source: Credit Union Times, "Student Debt Relief Bill Floated in Congress," Heather Anderson, Feb. 6, 2013

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