Section 523(a) lays out debts that politicians have determined are nondischargeable, meaning they won’t be eliminated when the bankruptcy court signs the discharge order at the end of the case.
This exceptional rule is reserved chiefly for extraordinary debts involving people who did bad things. Here are a few nondischargeable debts:
Money and credit obtained by a false pretense, false representation, false statement, or actual fraud.
Debt incurred due to larceny, fraud, or defalcation while working for a bank or credit union.
Debt owed as restitution for a willful and malicious injury to another person.
It also includes money owed for certain cash advances, luxury goods and services, income taxes, and domestic support obligations.
Student loan debt isn’t like any of these debts, but it’s given the same harsh and dramatic treatment.
Why is that? The best reason I’ve found comes from a 2007 law review article, The Nondischargeability of Student Loans in Personal Bankruptcy Proceedings: The Search for a Theory. Professor John A.E. Potow concludes in the paper that the most compelling theory is that Congress wants to prevent opportunistic debtors from defrauding the system by borrowing federal loans they never intend to repay in order to fund their future high-income careers.
But why are private student loans also nondischargeable? It could be argued that exempting private loans from discharge would reduce the cost of borrowing loans for students. That argument is weak because few borrowers rush to bankruptcy court shortly after borrowing them to try and get rid of their loans. Many people struggle to repay their loans for years before they file bankruptcy paperwork.
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