CONGRESS IS TAKING REAL ACTION TO SOLVE THE STUDENT LOAN PROBLEM

On May 4, 2017, a bill was introduced in the House of Representatives that finally tackles the problem of student loan debt. HR 2366, titled Discharge Student Loans in Bankruptcy Act of 2017 is a simple, clean bill that allows student loan debt to be discharged in bankruptcy, just like other types of debt such as credit card or medical bills.

With student loan debt nearing 1.4 trillion dollars, affecting over 40 million people, and with 70% of college or post high school students graduating with debt, Congress decided it was time to act. The bill is different than previous efforts. It has bi-partisan support, and was sponsored by Representatives of both parties.

Current bankruptcy laws allow student loans to be discharged in bankruptcy in very limited circumstances. Debtors must prove they cannot maintain a minimal standard of living due to their student loan payments; their circumstances are not likely to change while they owe the debt; and they have made a good faith effort to repay their loan, including any income based repayment options for federal loans. These standards are very difficult to meet, leaving many debtors stuck with student loans that cannot be paid.

It was not always that way. Before 1976, student loans were fully dischargeable in bankruptcy. After that, the laws were changed to state that a borrower had to wait 5 years from making the last payment or show undue hardship to get it discharged. 5 years was later extended to 7 years. Then only private loans were dischargeable, now no student loan is dischargeable in bankruptcy unless you can prove the factors listed above. In contrast, the law allows you to discharge old Federal Income Taxes with little effort.

This bill is in its early stage, and getting it passed and signed into law is a long ways off, but it is a good start to finally solve this problem. If it ever is enacted into law, who knows what the final form will look like. That is why it is important for anyone interested in this issue to immediately contact their Member of Congress and let them know you support the bill in its current form.