Current bankruptcy laws in American dictate that student loan debt cannot be discharged in bankruptcy, unless the applicant can show “undue hardship,” which is a financial burden so extreme that other options would not provide relief from the loans.
The average student graduating in 2016 carries a debt of over $37,000. This amount can be as many as two to three times more for those who complete graduate studies. Even without any other debt, student loan debt can prompt a financial tailspin for individuals, especially when repayment on student loans begins mere months after graduation.
The United States Congress has received several proposals aimed at reducing the student loan debt burden, one of which allows an individual to include his or her student loans in bankruptcy if and only if the lender does not offer any debt-relief options.
Organizations opposed to debt relief include those that purchased bundled student loans as investments called SLABS, or Student Loan Backed Securities. If the debt can be discharged in bankruptcy, the value of the SLABS decreases.