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Student loan borrowers can benefit from Chapter 7 bankruptcy

College is expensive, but for many people in California, not having a degree can be even more costly. Most well-paying jobs require a college degree, which can cost tens of thousands of dollars. While these loans generally cannot be discharged in Chapter 7 bankruptcy, there are a few other options for some borrowers. However, federal programs that offered relief to defrauded students may be disappearing. 

The Borrower Defense to Repayment program was instituted in 2016 after multiple cases of fraud from for-profit colleges. This program cancels federally-backed loans for students who were misled by colleges or attended schools that engaged in acts of misconduct. Although this program provided relief to many fraud victims, the current head of the U.S. Education Department believes the rules are too broad. 

A policy analyst claims that the current program allows for virtually any student to say their college misbehaved and then quickly have their loans canceled. Proposed changes would require students to demonstrate that their colleges intended to harm students. However, student advocates worry that this places an enormous burden on defrauded students who are simply trying to recover financially. One advocate pointed out that many of the new rules were initially suggested by for-profit colleges, and with nearly 99 percent of borrower defense claimants citing fraud from for-profit schools, the changes may protect schools rather than students. 

Although this change in policy stands to affect borrowers who were defrauded by their schools, there is still little help for the average California person who is simply struggling with student loan balance. In such cases, Chapter 7 bankruptcy might be the best option. After discharging other debts -- such as credit cards or personal loans -- individuals might be better financially prepared to tackle their student loans. 

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