Report on Student Loan Discharge in Bankruptcy

Posted by NCBRC - July 21, 2012

The Consumer Financial Protection Bureau and the Department of Education have released a report on private student loans, found at

The report finds that the 2005 BAPCPA law restricting bankruptcy protection for student loans coincided with rapid growth in questionable lending practices, compounding the risk to student borrowers. Although the restriction on bankruptcy discharge applies to all student loans, private student loans generally lack the intrinsic flexibility that permits federal student loan debtors to adjust their repayment based on income. The report finds little to no evidence that restricting bankruptcy rights improved either loan prices or access to credit. The report noted that the bankruptcy process itself, with its bad faith considerations, means testing, and attorney accountability, all protect against use of bankruptcy to unfairly defeat private student loan creditors.

Both the CFPB and the Education Department recommend in the report that Congress revisit the 2005 law restricting bankruptcy protection for private student loans stating:

“As noted in the report, several bodies were unable to find any systematic abuse of the bankruptcy code in seeking student loan discharges. Additionally, we were unable to find strong evidence that the 2005 changes to the bankruptcy code caused prices to decline or access to credit to increase significantly. If Congress concludes that the 2005 changes did not meet their overall policy goals, it would be prudent to consider modifying the code in light of the impact on young borrowers in challenging labor market conditions.”


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