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Rolling Back the 2005 Law on Student Loans

posted by Bob Lawless

Generally speaking, a consumer cannot discharge a student loan in a U.S. bankruptcy case unless the consumer can show undue hardship. Before 2005, the restriction on discharge reached only student loans made by governmental entities and nonprofit institutions. The idea was that governmental entities and nonprofit institutions made student loans to persons who otherwise might not be able to afford to attend college. To protect these student loan programs, the Bankruptcy Code gave government and nonprofit lenders this special advantage not available to most other consumer lenders.

The 2005 bankruptcy law amended the Bankruptcy Code so that student loans even from private lenders could be nondischargeable in bankruptcy. With the disclosures of side payments to college loan officers and other abuses in the student loan industry, Congress has been taking a closer look at lenders of student loans. On June 6, the Senate Committee on Banking, Housing, and Urban Affairs held hearings on the state of student loans, with New York Attorney General Andrew Cuomo describing private loans as the "Wild West of the student loan industry."

Senator Dick Durbin made what appears to have been the first response to these hearings. He has introduced S. 1561. Under Senator Durbin's legislation, only student loans "made, insured, or guaranteed" by a governmental unit would be nondischargeable in bankruptcy (absent a finding of undue hardship). The legislation would allow loans from private or nonprofit lenders to be dischargeable in bankruptcy. The discharge of loans from nonprofit student loan lenders would be a change from the pre-2005 law and was prompted, as I understand it, from reports that for-profit private lenders were sometimes working through nonprofit organizations. Also, as I read the legislation, it would make loans from state, but not private, universities and colleges nondischargeable. Take that Harvard.


I'm a US citizen and all my student loans are from US colleges, but I want to know if somebody can tell me if there is any country in the world where I can immigrate to where I can then discharge all my student loans in a bankruptcy??

From what I can tell England and Wales became non-dischargeable for student loans in 2006. I am still trying to figure out about Scotland, North Ireland, Ireland, Sweden, Germany, Spain, etc..??

Does anybody know the countries where this can be done??

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  • As a public service, the University of Illinois College of Law operates Bankr-L, an e-mail list on which bankruptcy professionals can exchange information. Bankr-L is administered by one of the Credit Slips bloggers, Professor Robert M. Lawless of the University of Illinois. Although Bankr-L is a free service, membership is limited only to persons with a professional connection to the bankruptcy field (e.g., lawyer, accountant, academic, judge). To request a subscription on Bankr-L, click here to visit the page for the list and then click on the link for "Subscribe." After completing the information there, please also send an e-mail to Professor Lawless ([email protected]) with a short description of your professional connection to bankruptcy. A link to a URL with a professional bio or other identifying information would be great.