Bankruptcy and Student Loans

Unfortunately, student loans are not dischargable by bankruptcy.  In the 1980s, Congress instituted reform to make student loans non-dischargable. 

The public policy and motivating factor behind this was to ensure funds are available for people that desire an education.  Policymakers reasoned that if people were allowed to file for bankruptcy or otherwise discharge educational debts without paying for them, then nobody is going to make those kinds of loans anymore. 

This thinking is misguided.  At the very least, instances like that would be few and far between. 

This policy does not benefit the government who not only wants to make sure money is available to give people access to an education, but also wants people to become productive, taxpaying members of society. 

The practical effect of this reform is that 99% of people who incur Student Loans are going to have to repay them and the interest they accrue.  For some individuals, this reality can be truly heartbreaking and even impossible.  For this reason, there are some cases that do qualify for the discharging, forgiving, or deferring of student loans.

The rules are different for each lending institution - but if you’ve decided to return to school, recently lost a job, or experienced some sort of catastrophic event, there may be a way to avoid payments, even if just temporarily. 

It’s best to get with your lending institution to find out what options are available to you.