Getting a good education does not come cheap. People with limited salaries and assets generally must take out loans for getting quality education to improve their chances of a better future. There are two options when it comes to taking loans; you can either opt for a federal student loan or a private student loan. Though private student loan seems easier to get, Los Angeles based bankruptcy law firm https://bankruptcy.recoverylawgroup.com/, inform that they are not that easy to get rid of. If you are going through a rough financial phase and seek to get your debts discharged, you might need to consult with bankruptcy lawyers at 888-297-6023 to know more about your student loan debt.
Difference between federal and private student loan debt
Federal student loans are different from private student loans because the government does not generally consider your credit history. Additionally, it does not alter the interest rate depending on your ability to repay the said loan. Moreover, interest rates of federal student loans are capped and generally lower than the market rate for unsecured debts as well as the average interest rate for private student loans. Even repayment of these loans is relatively flexible. You can extend the time frame, reduce monthly payments or even erase some amount of debts (conditional). Sometimes, debtors might pay very less amount with respect to the loan for a number of years and even get the remaining debt forgiven.
Unlike this, private student loans are more like unsecured debts. Students who are unable to get federal student loans can get those from private lenders. However, the interest rate will be huge. When it comes to repayment, you don’t get benefits similar to federal loans. you can ask the lender for leniency but there is not much that you can force them to do.
Prior to 2005, private student loans were treated like other unsecured debts (medical bills, credit cards, etc.) and could be discharged during bankruptcy. However, changes in Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, resulted in both federal and private student loans being treated at par. Thus, unless you can prove undue hardship, you cannot get rid of your student loan (federal or private) during bankruptcy. This is unfair as private student loan lenders charge a higher interest rate, decline loan to people with bad credit history, ask for co-signers and yet get respite during bankruptcy.
Can Congress bring any changes?
Representatives in Congress started rallying for the Private Student Loan Bankruptcy Fairness Act of 2013 since January 2013. This bill is likely to help people get rid of private student loans in bankruptcy. However, people are divided over the issue as they want to level the playing field between the loan borrowers and private student loan lenders. The passing of this bill would help remove any special treatment which is accorded to private student loans during bankruptcy. Essentially, this will put them at par with other unsecured creditors. If the bill becomes a law, private student loan debts would be discharged during bankruptcy as other unsecured debts are. People can hope for the best as this law will definitely help many unfortunate debtors get rid of their private student loan debts in bankruptcy.