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CFPB urges student debt discharge in personal bankruptcy in Texas

Debt became a focal point during the recent economic downturn that has affected much of the nation the last few years. Much of the focus was on credit card debt and mortgages, which were blamed for being significant factors in causing the financial meltdown in Texas and elsewhere. However, another type of debt which also contributed to the recession was student loan debts. These debts were especially troubling for students because it is extremely difficult to discharge this type of debt in a personal bankruptcy.

However, the Consumer Financial Protection Bureau (CFPB) and the Department of Education recently issued a report on the status of private education loans. Along with this report, the CFPB recommended that the bankruptcy laws be changed in order to allow private student loans to be discharged in bankruptcy. The CFPB based its recommendation on the fact that Americans have more than $150 billion in private student loan debts.

Private student loan debt is more worrisome than federal loans because the private loan companies do not offer the same generous repayment plans that federal education loans do. Also, many of the students who accept these loans do not properly understand the terms of the loans. However, the CFPB recommendation does not ask for federal student loans to be allowed to be discharged in bankruptcy, since those loans were granted with taxpayer funds. There are limits on federal student loans for undergraduates, therefore keeping students from taking on too much debt.

The CFPB argues that most other private loans can potentially be discharged in a personal bankruptcy in Texas. According to the argument, there should be no reason why students should forever be burdened by private student loans without the option of bankruptcy relief. If this proposed law change is accepted, it could provide significant relief for new graduates attempting to enter a job market which has not yet begun the recover from the recession.

Source: Baltimore Sun, "CFPB recommends allowing private student loans be discharged in bankruptcy," Eileen Ambrose, July 20, 2012

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