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Can bankruptcy laws fix the growing student loan problem?

For many Arizona college students, the prospects of graduation are both exciting and scary. Most are ready to step out on their own for the first time and find jobs and apartments for which they will be solely responsible. Another item with which many of these newly minted professionals must deal is student loan debt. While private and public loans are often necessary for young people to utilize in the payment of their educations, many students struggle to keep up with their loan payments once out in the real world.

Some experts in the financial world have dubbed the mounting national student loan default problem a crisis or an epidemic because it is so pervasive. The economy has done nothing to help this problem as many people in their early twenties have struggled to find work right at the time that their student loans become due. With few jobs available and bills adding up, some young people may consider filing forbankruptcy in order to alleviate their financial problems.

What many may not know is that student loans are generally not dischargeable under personal bankruptcy. Student borrowers must show that undue hardship would result from maintaining the liability for such debts to be eliminated. Since the ease of proving this standard can depend greatly on where a student lives, many individuals facing financial problems cannot afford the professional assistance that may be required to guide them through the bankruptcy courts.

Experts in the bankruptcy field have proposed several changes to bankruptcy laws that may help ease the burden of student loan payments for struggling borrowers. While some have suggested that private, non-governmental loans should be dischargeable in bankruptcy, others have suggested offering loans with manageable terms that would generally be easier for borrowers to repay.

As the student loan problem grows and young people continue to struggle, many will have to deal with the financial realities of debt. Though changes in the bankruptcy laws may eventually offer them some relief, most will have to find traditional ways to cope with their student loan liabilities.

Source: Deseret News, "How bankruptcy could help solve the student loan crisis," Devon Merling, Aug. 23, 2013