Student loan debt can be some of the most difficult debt for people in Virginia to deal with; while the numbers can be large, this type of debt is also unique in that it is ineligible for discharge in bankruptcy unlike other loans and debts. However, the chair of the Federal Reserve Board, Jerome Powell, questioned the necessity of this policy during testimony before the Senate Banking Committee in March 2018. Powell said that student loan debt stands alone in its inability to be discharged in bankruptcy and that he had no clear answer as to why this is the case.
One senator asked Powell about whether Americans’ high rates of student loan debt are dragging down the country’s economy. There is approximately $1.4 million in outstanding student loan debt distributed among over 40 million Americans. Various laws have been passed through the years that prohibited borrowers from discharging their student loan debt when filing for bankruptcy; now, the Department of Education is seeking input on the treatment of student loans in bankruptcy.
Some lawyers and judges have been attempting creative ways to allow student loan debt to be discharged, but without legal changes in Congress, there is unlikely to be a general effect for all borrowers. Powell noted that there is an ongoing negative effect when people cannot pay their student loans, especially when this problem becomes socially widespread.
People who feel that they are drowning in debt and are unable to pay their bills may find some hope, however, even if student loan debt is not yet dischargeable. Filing for Chapter 13 bankruptcy might help people reorganize their debt into an affordable payment plan and find relief from the overwhelming weight of debt. A bankruptcy lawyer may provide important advice and representation when going through the process to help clients find a new financial start.