It’s always been a struggle for student loan borrowers to discharge their higher-ed debt in bankruptcy. Now they may have an easier go of it thanks to a new bill introduced by Democrats in Congress.
The Student Borrower Bankruptcy Relief Act of 2022, introduced earlier this month by House Judiciary Chair Jerrold Nadler and Rhode Island Rep. David Cicilline, eliminates the section of the bankruptcy code that makes the loans some of the only consumer debt that is nondischargeable.
That would make it possible to get both private and federal loans discharged in bankruptcy court.
Under current law, federal student loans can only be discharged in “extremely rare cases,” according to the Congressmen, if the borrower demonstrates that repaying the loan would cause undue hardship. That’s a higher standard than the one applied to other consumer debt, like credit card or medical debt. Congress made private student loans nondischargeable in bankruptcy in 2005.
“Cumulative student loan debt has surpassed credit card debt to become the second largest category of private consumer debt after mortgages,” the Congressmen said in a statement. “Nondischargeable student debt is constraining the career and life choices of student borrowers.”
Additionally, Massachusetts Sen. Elizabeth Warren, also a Democrat, recently reintroduced the Consumer Bankruptcy Reform Act in the Senate, a broader bill that would also allow student loan borrowers to get relief in bankruptcy proceedings. Among other changes, her proposal replaces the current two bankruptcy chapters—Chapter 7 and Chapter 13—with a single system.
In the past, bills to make student loan debt dischargeable have received bipartisan support. The U.S. Department of Education is also weighing potential policy changes.
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