Can Bankruptcy Wipe Out Student Loans?

Student loans are not dischargeable in bankruptcy. Bill Ackman says the rule exists so people do not go to college and then, at 23, file for bankruptcy and wipe the loans out.

Katie Miller asks how to fix a system in which half of college grads work jobs that do not require a degree while they drown in student debt. Bill Ackman says he does not think an 18-year-old, maybe even a 17-year-old, signing on for student debt got the same federal disclosure as a mortgage or a credit card, or really understood the obligation. He thinks most people do not even know the loans cannot be discharged. A borrower underwater on a car, a credit card, or a home can reset through personal bankruptcy. Filing is no fun, it hurts a credit record, and people use it only as a last resort. Student loans stay. Mortgages can be refinanced as rates go down. Student loans generally cannot. He says borrowers stepped into an obligation he does not think they completely understood, and they have been burdened with it.

He does not think the obligations should just be erased wholesale. He wrote a long tweet on the topic and thinks fair steps can ease the burden. If a borrower is 40, still drowning, and effectively insolvent, he says they should be able to discharge the loans. By 40 they are pretty established in life, and a bankruptcy court should let them manage the loans like any other debt.