Student Loans and private lenders

In its recent October 1, 2015 report proposing changes to the student loan system, the Department of Education recommended that lawmakers make one type of private student loan debt — loans that don’t offer the option of income-driven repayment — dischargeable in bankruptcy court.

The Obama administration doesn’t want to see a flood of bankruptcy filings if the law is changed. The goal is to prod private lenders into giving borrowers the option to make more manageable payments.

Income-driven repayment plans — which base monthly payments on a percentage of income and can stretch loan terms out as long as 25 years — are the government’s great hope for plugging leaks in its own $1.2 trillion student loan portfolio.

More than 41 million Americans now owe the government student loan debt — nearly $30,000 each on average. The Consumer Financial Protection Bureau estimates that more than one in four of those borrowers are either behind on their loan payments or in default.

Student loan service’s — companies that collect payments on behalf of the government — are now signing up more than 5,000 borrowers a day for income-driven repayment plans, and 16 percent of federal direct student loan borrowers have already been placed in one.