Why Can’t Student Loans be Included in Bankruptcy?

People often ask me why student loans can’t be included in bankruptcy? If a person is unemployed, sick or injured, or barely making it with low income, than why should it matter if a debt is a credit card loan or a student loan? Who made this decision? The answer is: the United States Congress. Now, as tens of thousands of small businesses shut down due to COVID lockdowns, the ability of student borrowers to find work and repay loans is even more reduced. Millions of borrowers are in full default.

Many people do not realize that student loans were fully dischargeable in bankruptcy through the 1980s. Ironically, no one was suffering from unpayable student loans in the 1980s for the precise reason that leaders in banking and higher education knew better than to charge young people with low income too much, because loans were not guaranteed by the government. College was cheaper back then for a reason, now the sky is the limit.

To this day, people can even put old tax debts into a bankruptcy, but not student loans. This is ironic considering the fact that to owe taxes, a person must once have had an income from which the tax debt was derived, while a person with student loans may never have had the income they thought they’d achieve at the time the loan was made, typically when they were young and inexperienced.

Since the United States Congress is responsible for making student loans impossible to discharge in bankruptcy, the only way to fix the problem is to contact one’s senators and U.S. representative and demand that the law be changed again to put student loans BACK into bankruptcy.

Ironically, the student loan crisis has gotten so bad that now there is widespread support for universal forgiveness of all student loans. Perhaps if Congress had refrained from removing student loans from bankruptcy, such a drastic step would not now be on the table.

It’s easy to e-mail one’s senator or congress person. Just google “current [name of U.S. state] senators” and their websites will appear. To contact one’s U.S. representative, just go to the U.S. House of Representatives website and input one’s zip code. Just as with the senators, one may e-mail U.S. representatives directly through their website.

But wait… why did the US Congress make this decision? The answer is that by funding educational institutions THROUGH student borrowers, Congressional spending is cloaked and hidden behind young people’s naive efforts at self improvement. The borrower doesn’t get the money; the school gets the money from the US Congress. But the borrower is blamed and held accountable. It’s a classic switch and bait…

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