Student loans are a gold mine for banks. There is no other kind of loan that cannot be discharged on bankruptcy. Think about business loans: every business loan can be discharged on bankruptcy by definition.
While you can technically discharge student loans through bankruptcy, the bar is much higher than traditional debts. I wonder what the consequences would be if that bar was lowered?
Aren't there a lot of protections for these loans? I thought they could not be discharged through bankruptcy, et cetera. My intuition is that this would reduce risk; seems a bit odd.
That is not as clear cut as you make it. There have been rulings in the last several years that have allowed some private loans to be discharged in bankruptcy proceedings.
> In January 2020, the U.S. Bankruptcy Court for the Southern District of New York discharged over $200,000 of student loan debt for one borrower. Then, in August 2020, a ruling by the 10th circuit federal appeals court based in Denver, Colorado eliminated $200,000 for a Colorado couple who held 11 private student loan accounts. And in September 2020, a judge for the U.S. Bankruptcy Court for the Southern District of New York ruled to enforce a prior bankruptcy discharge of a borrower’s $400,000 of federal student loans that a servicer had failed to carry out.
> These decisions could serve as a precedent for future bankruptcy cases involving student loans, says John Rao, an attorney with the National Consumer Law Center.
> "A lot of people, even some of the lawyers who represent consumers, thought for years that you really shouldn’t even try because there's not a chance you’ll win, but I think everyone is looking at it now with sort of a fresh look," Rao says.[0]
They might not be dischargeable in bankruptcy, but a recent article I came across mentioned that a huge percentage of outstanding loans are technically in default. Those are loans that are way behind in payments.
All of which, I guess, says that if student loans can be trivially discharged in bankruptcy, then we should expect that non-government loans will quickly go away, and government loans will start to have a ~100% default rate
(or this judge's decision won't become universally applicable, or the law will be changed to circumvent it)
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