Got Student Loans? Congress May be Giving You Some Help
Many Ameircans are Struggling with Student Loan Debt, for the Moment.
About 42 Million Americans, or 1 out of 8 Americans, have some student loan debt according to the Brookings Institute. In fact, student loan debt is the second largest type of debt that most Americans hold besides mortgages, even more so than credit card debt. So, when a senator or Presidential candidate starts discussing possible options for student loan borrowers, people tend to listen because they have a vested interest in the actions taken by the federal government concerning student loans. As it stands, there is about 1.5 trillion dollars in student loans currently owed by Americans, but this may be reduced in the near future. How? Well, since 2019, both chambers of Congress have been working on legislation that would allow students loans to be discharged in bankruptcy proceedings, and the work is still ongoing.
The House Bill Allowing People with Student Loans to Discharge Their Debts in Bankruptcy
On May 9, 2019, Representative Jerry Nadler introduced a bill called the Student Borrower Bankruptcy Relief Act of 2019. This bill would have removed the current standard imposed on individuals with student loan debts. As it stands, student loans fall under an exception in the bankruptcy code under 11 U.S.C. § 523(a)(8)(A)-(B) that provides, among other things, that a discharge of debts after completing a Chapter 7 or 13 Bankruptcy does not discharge most student loan debts unless maintaining the debt would “ impose an undue hardship on the debtor and the debtor's dependents.”
As you could imagine, most people don’t satisfy this standard, and thus, are still saddled with their student loan debt even after declaring bankruptcy, but the Student Borrower Bankruptcy Relief Act of 2019 would change all of that by repealing the current exception for student loan debts in the code. Ultimately, this would mean that student loans would be treated just like any other unsecured debt and would be discharged after a person successfully completes a Chapter 7 or 13 Bankruptcy. As of 10/1/2020, the bill passed in the House Judiciary Committee, and if it passes the House, observers anticipate that the bill won’t pass the Senate in its current form.
The Senate Bill That’s Making a Splash on Capitol Hill, and yes, Student Loans are on the Menu
But the House isn’t the only one with skin in the student loan game. On December 9, 2020, Senator Elizabeth Warren along with Representative Jerry Nadler from the House introduced the Consumer Bankruptcy Reform Act of 2020. If passed, the bill would be a huge overhaul to the bankruptcy system overall because it would eliminate an individual’s ability to seek a Chapter 7 liquidation bankruptcy and repeal Chapter 13 of the bankruptcy code altogether. Moreover, the bill would create a new form of bankruptcy known as a Chapter 10 Bankruptcy, but the important thing for most American’s is that it would eliminate the undue hardship provision that applies to student loan debts.
With the Democratic Party taking control of the House, Senate, and the White House, it is completely possible that at least one of these bills could pass both chambers and become law. However, that’s not the end of the discussion. What about student loan forgiveness?
President Joe Biden Forgives Some Student Loans but It Only Applies to a Small Amount of Americans.
On March 20, 2021, Joe Biden cancelled the student loan debts of about 72,000 borrowers, or 1 billion dollars worth, according to Forbes Magazine. However, these borrowers were students at colleges that either engaged in deceptive or unfair practices or closed suddenly. However, these individuals already had a portion of their student loans cancelled, and President Joe Biden just finished the job and forgave the difference.
So, What’s Next?
As it stands, we will have to see where the student loan debate goes next, but certainly, individuals struggling with student loan debt should be more hopeful than ever about the possibility of receiving some type of financial relief. But at the moment, it appears as though Congress wants to change the bankruptcy code in some way to allow individuals with student loan debt to receive some type of economic relief by utilizing the bankruptcy system.
