Trump administration may make it easier to wipe out student debt in bankruptcy

Personal Finance

Student loan borrowers may finally have their day in court.

The Education Department said Tuesday it would review when borrowers can discharge student loans, an indication it could become easier to expunge those loans in bankruptcy.

The department said it is seeking public comment on how to evaluate undue hardship claims asserted by student loan borrowers to determine whether there is any need to modify how those claims in bankruptcy are evaluated.

As of now, “it’s almost impossible to discharge student loans in bankruptcy,” said Mark Kantrowitz, a student loan expert. “The problem was undue hardship was never defined and the case law has never led to a standardized definition.”

Meanwhile, college-loan balances in the United States have jumped to an all-time high of $1.4 trillion, according to Experian. The average outstanding balance is $34,144, up 62 percent over the last 10 years.

Roughly 4.6 million borrowers were in default as of Sept. 30, 2017, also up significantly from previous years.

The national student loan default rate is now over 11 percent, according to Department of Education data. Student loans are considered in default if you fail to make a monthly payment for 270 days. Your loan becomes delinquent the first day after you miss a payment.

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