44.7 million Americans carry student loan debt totaling $1.56 trillion, second only to mortgage debt. The average student loan payment for borrowers 20 to 30 years old is $393 per month.
In the last quarter of 2018, U.S. student loan delinquencies reached a record of $166 billion, an all time high. For many borrowers, even income-based repayment presents significant challenges to maintaining sustainable payment amounts on their student loans. Student loan forgiveness would provide relief to these distressed borrowers.
Student loans are generally nondischargeable in bankruptcy
Only in rare cases are student loans allowed to be discharged in bankruptcy. That’s because, since 1976, Congress has steadily chipped away at the bankruptcy discharge for student loans. Now, student loans can be discharged in bankruptcy only if the debtor can demonstrate undue hardship, which is a very difficult standard to prove.
There exists no compelling rationale to treat student loans differently than other types of student loan debt.
Unemployment, underemployment, disability, divorce, or the death of a spouse can all lead to a persistent or even permanent inability to repay student loans. Millions of Americans struggle to make the minimum payments on these loans, often without ever making a dent in their debt.
Student loan forgiveness
The political establishment appears finally to be taking notice.
On June 2019, Senator Elizabeth Warren (D-MA) and Representative James E. Clyburn (D-SC) announced bicameral legislation to provide student loan forgiveness to 95 percent of borrowers, or more than 42 million Americans. The law would completely cancel student loan debt for more than 75 percent of Americans with student loan debt.
Also in June 2019, Senator Bernie Sanders (D-VT) has proposed legislation to completely eliminate the student loan debt of every American. Under Sanders’ plan, all student debt of any kind would be canceled if the legislation is passed into law.
In addition, currently under consideration in Congress are H.R. 770 Discharge Student Loans in Bankruptcy Act of 2019, which would allow the discharge of both federal and private student loans in bankruptcy.