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New bill would allow federal student loan borrowers to discharge loans in bankruptcy

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student loans, money, school, education
By Kenzie Dillow

WASHIGNTON (WREX) � A new bill would give the ability for struggling borrowers to seek a bankruptcy discharge for federal student loans after a waiting period of ten years.

U.S. Senate Majority Whip Dick Durbin (D-IL), Chair of the Senate Judiciary Committee, and U.S. Senator John Cornyn (R-TX), member of the Senate Judiciary Committee, Tuesday announced the introduction of the FRESH START Through Bankruptcy Act of 2021.

Currently 45 million Americans hold more than $1.7 trillion in student loan debt.  Unlike most other types of debt, student loans are not dischargeable in bankruptcy except in extremely rare circumstances.

ճFRESH START Through Bankruptcy Act of 2021 would implement the following reforms:

  • Make federal student loans eligible for discharge in a bankruptcy proceeding ten years after the first loan payment comes due, similar to the option to discharge federal loans after a waiting period that was in effect prior to 1998;
  • Retain the existing undue hardship discharge option for private student loans and for federal student loans that have been due for less than ten years;
  • Increase institutional accountability by creating provisions that require colleges with more than one-third of their students receiving federal student loans to partially reimburse the government if a student’s loan is later discharged in bankruptcy and if the colleges had consistently high default rates and low repayment rates, and ;
  • Provide an option for student borrowers who have no realistic path to pay back their overwhelming student loan debt by allowing bankruptcy to be an option to help them get back on their feet.

Cumulative student loan debt is the second largest category of consumer debt after mortgages. Most forms of debt, such as credit card debt and medical debt, can be discharged through the bankruptcy process; only limited types of debts, such as child support payments, alimony, overdue taxes, and criminal fines, are treated as non-dischargeable. Under federal law, student loan debt is non-dischargeable in bankruptcy except in extremely rare cases of “undue hardship.” �

“Student loan debt follows you to your grave. For years, I have supported allowing struggling borrowers to discharge their loans in bankruptcy as a last resort. Our bipartisan bill finally gives student borrowers � some who were misled into taking out costly loans by predatory for-profit colleges � a chance to get back on their feet when they have no other realistic path to repay their loans,” Durbin said.

A summary of the bill is available .