Report Reveals Millions of Student Loan Borrowers Eligible for Bankruptcy Discharge

A report that has been published by the Student Borrower Protection Center suggests that there are “tens of billions” of dollars in unpaid student loans that are eligible to be discharged via the bankruptcy process and that “industry schemes have robbed borrowers of their right to discharge.”

A copy of the report can be accessed by clicking here.

The report calls on state and federal lawmakers to “end this charade and deliver borrowers their rights.”

The assumption that student loans are not allowed to be discharged when filing for bankruptcy protection is “commonly held and widely repeated conception”: that is “false,” according to the report. The issue is over what defines a “private student loan,” according to the report. Loan products that do not meet the definition of a “qualified education loan,” are “not subject to the Bankruptcy Code’s generally restrictive treatment of qualified education loans in bankruptcy,” according to the report.

Many loans are branded as private student loans, but in fact do not meet the definition of a qualified education loan, and are this allowed to be discharged via bankruptcy, according to the report.

Originators and servicers of student loans have “engaged in a startling array of illegal practices related to the marketing, servicing, and collection of presumptively dischargeable private student loans,” the report alleges. “Big banks and other private creditors have lied to borrowers about the availability of bankruptcy and have even continued to collect on the discharged debt from borrowers who have gone through the bankruptcy process. In doing so, these companies have collected potentially hundreds of millions of dollars of payments on debt that borrowers did not owe.”

The report estimates that as many as 2.6 million individuals have private student loans that would qualify for discharge via bankruptcy.

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