Before the 1970s, student loan debt was dischargeable in bankruptcy. Then Congress required student loan borrowers to repay for five years before they could file for bankruptcy on those loans. Gradually, lawmakers chipped away at even that protection. Today, debtors in bankruptcy must prove undue hardship to discharge student loans. On May 9, 2019, a new bill, the Student Loan Bankruptcy Relief Act, was introduced in both the House and Senate.
The bill would eliminate the section of the bankruptcy code that prevents federal students loans and private student loans from being discharged in bankruptcy. Under the bill, student loans would become dischargeable like all almost all other forms of consumer debt, including mortgages, credit cards, and medical debt.
Student Loan Bankruptcy Relief Act of 2019
Student loan debt will grow to $2 trillion by 2022, far surpassing credit card or auto debt. Lenders might be more likely to provide struggling borrowers accommodations if bankruptcy discharge was available. Plus, some borrowers simply can’t repay their debt and should have the option to discharge those debts in bankruptcy .
Sign of the times
In fact, student loans can continue to beleaguer bankruptcy debtors long past the bankruptcy discharge. Bankruptcy’s promise of a fresh start contains a gaping hole: student loans. We need to rewrite the bankruptcy code to allow for the discharge of these loans.
That time is not yet here. The Student Loan Bankruptcy Relief Act may not get the job done. But we’re getting closer. And we’re not going to give up.