Center for American Progress

Qualified Student Loans Could Protect Both Borrowers and Taxpayers

Qualified Student Loans Could Protect Both Borrowers and Taxpayers

If we reformed bankruptcy laws to include some student debt, we could help struggling borrowers and foster better student loans and academic programs.

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Last year slightly more than 1 million Americans filed for bankruptcy, as did about 40,000 businesses. As has been the case since the founding of the country, bankruptcy has been an alternative of last resort for those facing severe economic hardships, such as a business failure or medical crisis, and hoping to make a fresh start. Bankruptcy protection encourages a healthy level of risk taking and boldness by letting citizens know that their mistakes may not permanently cripple them financially.

This is cold comfort, however, for the millions of Americans and their families struggling with student-loan debt. Over the past few decades, student-loan debt has grown dramatically and now exceeds $1 trillion, including more than $150 billion in private student loans. Since the late 1970s, however, Congress has gradually made it increasingly difficult to discharge student debts in bankruptcy. Only a small number of bankruptcy cases involving student debt succeed due to a rigorous “undue hardship” provision of the bankruptcy code that generally allows these discharges only under the most extremely dire circumstances.

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