Will we see a rise in the number of post-college bankruptcies? Probably.

Michael Stratford reports at Inside Higher Ed.

New Push on Bankruptcy Protections

The Obama administration is calling on Congress to make it easier for some student loan borrowers to erase their debt through bankruptcy, as part of a package of proposals aimed at helping Americans who are struggling with loan payments.

In a report released Thursday by the U.S. Department of Education, administration officials outlined a range of recommendations for improving the nation’s student loan system, most of which require congressional action.

Perhaps the most significant proposal — and likely to be among the more contentious — is for Congress to ease the process for private student loan borrowers seeking to have their loans wiped out through bankruptcy. The administration is proposing that Congress roll back a 2005 law, enacted at the behest of private lenders, which set a high bar for when bankruptcy filers can discharge their private student loan debt.

Consumer advocates and some congressional Democrats have long sought such a change, but this is the first time the Obama administration has backed a revision to the rules governing how student loans are handled in bankruptcy proceedings.

“All other types of consumer debt are dischargeable in bankruptcy and we think private student loans are a glaring exception,” Under Secretary of Education Ted Mitchell said in an interview, explaining the administration’s new position.

“We feel strongly that while there are protections built into the [federal] direct loan program that are important for borrowers, there aren’t parallel protections for borrowers in the private student loan market,” Mitchell said. “We think it’s important to do what we can to create those protections, and we think starting with a bankruptcy provision is the way to go.”

The administration’s proposal would not ease bankruptcy discharges across the board on private student loans. Instead it would extend the enhanced borrower protections only to private student loans that don’t offer flexible repayment plans like those granted to federal loan borrowers.