Students Seek Relief from Loans in Bankruptcy Court

Another story on student loan burdens:

Tighter laws over the past two decades have made private student-loan debt nearly impossible to escape in bankruptcy. But some young borrowers are turning to the courts anyway, in the hopes of finding a forgiving judge or pressuring lenders to restructure their payments.

The numbers so far have been small. Last year, when nearly 1.4 million Americans filed for bankruptcy protection, only 683 tried to get rid of student loans, according to data compiled by Dow Jones.

But bankruptcy judges and lawyers who represent student lenders say they expect more people to try to discharge student loans as overall borrowing swells.

The strategy carries big risks. Litigation is costly, and renegotiated repayment terms can leave little room for error.

What's more, bankruptcy sinks a credit score. "Anybody who has bad credit pays more for credit, and young people have no idea that this is the case," says University of New Mexico Prof. Nathalie Martin, an expert on consumer debt.

Bankruptcy also can carry a stigma with potential employers, consumer advocates say.

The government has several generous repayment programs for the $800 billion worth of student loan debt it backs, including one that eliminates monthly payments for the unemployed. But the roughly $150 billion private-loan industry doesn't have similar programs.

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