The Non-Dischargeability of Private Student Loans: A Looming Financial Crisis?

Unlike the vast majority of consumer debts owed to private lenders, educational loans made by private lending institutions are protected as non-dischargeable under Section 523(a)(8) of the Bankruptcy Code. Because most borrowers cannot shirk their obligations to private student lenders, even by filing for bankruptcy, lenders are willing to lend more in this context than with other dischargeable forms of debt; thus artificially inflating the market for higher education loans. This practice is becoming crucial to the health of our overall economy as student loans have become one of the largest forms of consumer debt in the United States, second only to mortgages. This Comment examines why private student lenders should not be afforded special protection under Section 523(a)(8), and then suggests that removing this protection and thus allowing the discharge of private student loans can help to deflate the growing higher education bubble