Student Loan Borrowers Increasingly Turning to Bankruptcy to Alleviate Burden

Editors' pick: Originally published Dec. 27.

Those suffering under the burden of student loans often can't see a way out. As a result more and more college graduates are putting off things like marriage and buying a home, in order to pay down their massive student debt. Many college graduates are back living in their childhood bedrooms because the debt is so large that paying rent is impossible.

However, a new trend among those weighed down by student debt is helping to alleviate the pressure -- filing bankruptcy. Since March there have been numerous bankruptcy courts that have allowed borrowers to wipe out their private student debt thanks to vague wording in the definition of a student loan. Usually, student borrowers cannot use bankruptcy to cancel their private debt. 

Fox Business Network consumer and finance reporter Gerri Willis appeared on Tuesday afternoon's "Cavuto: Coast to Coast" to discuss the bankruptcy option for student loan borrowers.

"We were used to not being able to discharge student loan debt in personal bankruptcy, right? And in fact since the Great Recession we've seen bankruptcies just fall off the cliff. It's good news, right? But that number could completely turn around now because we're seeing more and more of these folks facing this $1.4 trillion in debt," Willis said.

Several times this year bankruptcy courts have allowed student loan borrowers to wipe out private debt with the help of an argument that relies on the vague definition of a student loan, the Wall Street Journal explained. Bankruptcy law states that a borrower cannot clear a loan made for an educational benefit without proving extreme hardship. Some students are arguing that their loans fall outside of this debt category because they attended a college that was not accredited or used loans that were taken out for the purposes of studying for a test like the bar exam. 

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