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Tuesday, May 16, 2017

New Bill to Allow Bankruptcy Discharge of Student Loans Submitted to Congress

     H.R. 2366, the  Discharge Student loans in Bankruptcy Act was submitted by lead Congressman John Delaney (D-MD) this month. It is heralded as a bi-partisan effort, but only one republican John Katko(R-NY) has signed on so far as a co-sponsor. It is also an ambitious proposed amendment since it completely eliminates the subsection in 11 USC 523 referencing student loans as an exception to discharge. Therefore, no more need for proof of undue hardship or time limitations applied to discharge of student loans which will be treated like any other dischargeable debt. The ability to discharge student loans will be based on the existing limitation to qualify for discharge in Bankruptcy including the Chapter 7 means test for example. Also no distinction between federally insured  and private student loans which I anticipate will incur some blowback and possible changes if this amendment  even makes it way through Congress. The need for this amendment has been well documented in the press with the student loan crisis reaching epic proportions. The question is whether a Republican controlled Congress very much beholden to a strong bank lobby will approve it. This is especially true with regard to private student loans the biggest problem for debtors since unlike federal student loans there are no payment programs in place to provide any relief to debtors.
     It may take until 2018 with the possible control of the House and/or Senate being transferred to the Democrats. Also the undpredictability of the current occupant of the White House and how long he may stay there also will come into play. The need for reform is clearly there. Will this current government take the necessary action to address it is unclear at best. I encourage anyone concerned with this issue to reach out to their Congressperson to advocate for the passage of this amendment to bring the relief needed to those debtors suffering from the burden of excessive student loan debt. This crisis affects all of us not just these debtors since it a major drag on our economy and once these debtors especially young struggling adults are freed from this debt they will be able to start families, buy homes and related items to help grow our economy for the benefit of all.