Concern About Student Loan Debt Drives Discussion Over New Tennessee Bankruptcy Laws

Bankruptcy was created to help Americans relieve the burden of impossible debt. Yet for the past 7 years, there was one important type of debt it couldn't ease: student loans.


But some legislators are bent on changing that, according to The Wall Street Journal.

In 2005, Congress revised bankruptcy laws to exclude the discharge of debt from education loans, except in rare circumstances. The theory was that, without collateral like homes and cars, young graduates would find it all too easy to walk away from their obligations if bankruptcy was a possibility.

What Congress couldn't foresee was just how out of control the student debt crisis would get within the next decade.

Earlier this year, the collective total of education loan debt reached the $1 trillion mark, higher than the nation's collective credit card debt.

Meanwhile, college graduates are finding it difficult to make payments. It's estimated that 27 percent of borrowers who have begun paying back loans are already delinquent.

Some are referring to the situation as the next big economic bubble. For the many young grads struggling to find decently-paying jobs, paying down debt may not currently be possible. Not surprisingly, young adults are putting off major purchases like homes and cars, which is having an effect on the entire economy.

A proposed bill would allow the most overwhelmed graduates to file for bankruptcy in Tennessee and other states. Unfortunately, even if it passed, it would only apply to a small portion of borrowers - those with private loans from banks and other lenders.

Ninety percent of school loans are government-backed, and therefore wouldn't be eligible for bankruptcy.

However, Tennessee bankruptcy may still offer indirect assistance to students, and families of students, drowning in student loan debt.

By relieving other forms of unsecured debt such as credit card debt and medical expenses, filing for bankruptcy may help debtors better afford loan payments, lower their overall debt burden, and eventually begin rebuilding credit.

Learn if bankruptcy could lighten your load by speaking with one of our Tennessee bankruptcy attorneys. Call the DebtStoppers Bankruptcy Law Firm at 800-440-7235 today for a complimentary debt analysis.

More Blog Entries:

Parents Who Co-Sign for Kids May Be Stuck with Credit Damage, Tennessee Bankruptcy: April 7, 2012

As State Cuts University Budgets, College Students Take Out Bigger Loans in Tennessee: March 12, 2012

Additional Resources:

Trying to Shed Student Debt, by Josh Mitchell, The Wall Street Journal

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