The Obama administration urged Congress to make it easier for people to discharge a portion of certain student debt by filing for bankruptcy protection, the Wall Street Journal reported today. The recommendation, in a report by the Education Department and the Consumer Financial Protection Bureau (CFPB), would not affect the vast majority of student debt, which is issued by the federal government. It would apply only to the roughly $150 billion, or 15 percent of total outstanding student debt, issued by private lenders such as SLM Corp.'s Sallie Mae and Wells Fargo & Co. CFPB director Richard Cordray said Congress should consider modifying a 2005 law that, except in rare circumstances, prohibits discharging private student loans through bankruptcy. Private lenders warn that the suggested change could drive up interest rates, since the risk of losses would increase. They argue that bankruptcy provides too big a temptation for students to walk away from their debt obligations because, unlike homeowners, for example, many students lack major assets. Sallie Mae, the nation's largest private issuer of student loans, said that it would back a legislative change that would allow bankruptcy in limited cases.
Click here to read the government report.
http://files.consumerfinance.gov/f/201207_cfpb_Reports_Private-Student-…