Some people in Mississippi may be struggling to pay off their student loans, but these obligations are generally not dischargeable in a bankruptcy. The total amount of student loan debt in the United States has reached $1.4 trillion carried by 40 million people. In the 1970s, Congress began reducing the ability of borrowers to discharge student loan debt. It is only allowable in cases of “undue hardship”. What this is has never been defined, but courts have traditionally set very stringent guidelines.
On March 1, Federal Reserve chairman Jerome Powell spoke before the Senate Committee on Banking, Housing, and Urban Affairs and said he could not explain why student loans were not dischargeable. However, he said that it was not a change he could make in his position although Congress could address it.
Sen. Brian Schatz asked Powell about the effect the student loan debt could have on the economy. Powell said that on an individual level, it hurt people’s credit ratings and their economic lives over the long term. As for the economy as a whole, he said the amount of debt could hinder growth. Powell is not the first financial expert to express concern about student loan debt. For example, the president of the Federal Reserve Bank of New York has talked about its effect on economic mobility.
While a person may currently be unable to discharge student loans in bankruptcy, restructuring debts under a Chapter 13 bankruptcy might free up enough cash to stay on top of payments. People who are struggling with debt might want to talk to an attorney about how this type of bankruptcy could work for them. Filing for bankruptcy automatically stops any debt-related action against a person including foreclosure. Chapter 13 bankruptcy allows a person to keep some assets and pay off creditors over three or five years.