As a bankruptcy attorney in New York City, I meet many people in all kinds of debt.  Since I began practicing bankruptcy law in the 1980’s, one area of debt has increased dramatically -- student loan debt.  During the 1980’s and most of the 1990’s, student loan debt was not a big problem, because the total amount of student loans was less, and those debts were dischargeable in bankruptcy.  That all changed in 1997, when, for all practical purposes, student loans became non-dischargeable, meaning that a person could not eliminate them in bankruptcy. 

Currently, more than one trillion dollars is owed in student loans in the United States. For many people, the amount owed on student loans is more than the amounts that they owe on other types of debts, including credit cards.  It is not uncommon for me to see people who owe more than $100,000 in student loans.  Some of these people went to college after high school to obtain an education so that they would be able to get a good paying job.  Others went back to college to get new skills or to improve their skills.  Too often these people have found that they could not find a job that would pay nearly enough to support themselves and to pay the student loans.  Through no fault of their own and in an effort to do the right thing and improve their circumstances, many are faced with debt that they cannot even hope to pay off and are confronted by aggressive debt collectors. 

The right to a fresh financial start to life through bankruptcy is granted in the U.S. Constitution as interpreted by the U.S. Supreme Court.  Denying the benefits of bankruptcy to people with student loans is a violation of their constitutional rights.  Some will say that denying debtors the right to discharge student loans in bankruptcy is not a violation of their constitutional rights, because there is a “hardship” exception that allows student loans to be discharged.  Unfortunately, this exception is out of reach for the vast majority of people filing bankruptcy, because the Bankruptcy Court has interpreted this exception in a way that makes it very difficult to meet the requirements of “hardship.”  Furthermore, a debtor must bring the hardship request before the judge through a proceeding that many consider as rigorous as a trial.  This is not simple, and, for the debtor who is prudently represented by a bankruptcy attorney, it is expensive. 

Some proposed legislation is pending that aims to improve this situation, but this legislation would not completely solve it.  The best solution would be to return to the laws of the 1990’s concerning student loans and bankruptcy, when a student loan was dischargeable if a student loan has been in paying status for at least 5 years.  This approach makes sense.  If, after five years, a person cannot pay his or her student loans, the person will have the opportunity to get a fresh financial start to life by exercising his or her constitutional right to a discharge in bankruptcy.