Report urges bankruptcy protection for certain student loans

CAP's plan would allow borrowers to discharge certain types of student loans in bankruptcy.
CAP's plan would allow borrowers to discharge certain types of student loans in bankruptcy.

More student loans should be open for discharge in bankruptcy, argues a new report released by the Center for American Progress (CAP), an advocacy organization. Under current law, the vast majority of student loans — federal or private — cannot be discharged in bankruptcy except under extremely rare circumstances. CAP's report proposes a new way to classify federal and private loans that would create more transparency for borrowers. 

CAP's publication calls for the classification of "Qualified Student Loans," that would remain protected from bankruptcy if they offered reasonable repayment terms for students in college programs with positive employment outcomes.

According to the Huffington Post, "a Qualified Student Loan would have to have interest rates that do not exceed caps established by Congress, would offer deferment and forbearance provisions, and would allow for income-based repayment. In addition, the institution at which the borrower enrolls would have to meet minimum standards for completion (i.e., graduation rates), job placement and evidence-based future salary projections."

Non-eligible loans — ones with unreasonable payment terms or issued by poor-quality educational institutions —  could be discharged in Chapter 7 bankruptcy after the borrower waited a specified period.

The organization argues that its plan would urge private lenders to offer more student loan forgiveness and consolidation options similar to those provided by the federal government. In addition, the Qualified Student Loan model would push education institutions to improve their academic programs and ensure their graduates are gainfully employed in their field of study. 

If you are interested in learning more about federal student loan repayment options, contact the Student Loan Relief Center, Inc. today at 1-888-792-6201.

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