Finally - some bankruptcy relief for student loans on the horizon

The growth of student debt is stirring debate about whether the government should step in to ease the burden by rewriting the bankruptcy laws—again.

In 2005, Congress prohibited student debt from being discharged through bankruptcy, except in rare cases, because of concerns that many young graduates—who often have no major assets such as a house or a car—would be tempted to walk away from loan obligations.

Some lawmakers now want to temper that position, pointing to concerns that a significant number of Americans could be buried under education loans for decades. Their efforts, however, would apply only to private loans—a fraction of the market.

In the past decade student debt has surged as tuition and enrollment climbed. At the same time, college graduates' earnings have declined. The average debt load of all new graduates rose 24%, adjusted for inflation, from 2000 through 2010, to $16,932, says the Progressive Policy Institute, a left-leaning think tank in Washington. Over the same period, the average earnings of full-time workers ages 25 to 34 with no more than a bachelor's degree fell by 15% to $53,539.

Terri Reynolds-Rogers, a 57-year-old health-program manager from Palmer, Alaska, declared bankruptcy in 2007, but still has $152,000 in student debt. She said she dropped out of medical school in 1999 to care for her two children after her husband died of brain cancer.

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