Is bankruptcy the answer to crippling student loan debt? Some Democratic U.S. Senators think so. In response to the more than $1 trillion in outstanding student debt, Dick Durbin of Illinois, Iowa’s Tom Harkin, Minnesota’s Al Franken, and Rhode Island’s Sheldon Whitehouse and Jack Reed started the new year by re-introducing legislation to try to help. The Fairness for Struggling Students Act of 2013 would allow students with private loans to go to bankruptcy court. Right now they can’t. This however, would not apply to government loans. You can’t get rid of them in bankruptcy court either.
Senators also introduced the The Know Before you Owe Act of 2013, which makes a lot of sense. It introduces the idea of transparency to protect students from expensive private loans. It would require schools to counsel students to see if they have options including untapped federal student aid. Federal student loans have fixed interest rates and include consumer protections. Private student loans have uncapped variable interest rates, high origination fees, and lack consumer protections according to the senators. The legislation would also require a student’s school to confirm enrollment, cost of assistance and estimated federal financial aid available before the private loan is approved.