Student Loan Relief: Bill Could Allow Bankruptcy Discharge


Iowa Senator Tom Harkin has proposed a new bill that would create an option for private student loans to be discharged through bankruptcy proceedings. Currently, federal law allows neither federal nor private student loans to be discharged in bankruptcy (debt accrued from credit cards and auto loans can be discharged).

However, there are some exceptions. Last year, the U.S. Department of Education enforced new regulations making it easier to discharge student loans for those who have a disability.

Furthermore, Senator Harkin’s proposed bill would call for reducing student costs, shine a light on schools with high default rates, and make it mandatory for colleges to make student outcomes available.

Consumer advocates argue that banning borrowers from the option to discharge student loan debt in bankruptcy will cause some of them to be encumbered by  an unmanageable debt load that they might never be able to repay. Most other types of consumer debt, including money owed on mortgages, credit cards and auto loans, can be discharged in bankruptcy.

It doesn’t look like the bill would pass this year, but there is still some hope.

Says the Wall Street Journal, “The bill isn’t likely to pass this year, given the midterm elections and broad partisan disputes over higher-education policy. But it sets a stake in the ground for Democrats in talks on a final bill.”

 

 

 


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