Student borrowers have always struggled to pay off their higher education debt in the event of bankruptcy. Now they can get there easier thanks to a new bill introduced by Democrats in Congress.
The Student Borrower Bankruptcy Relief Act of 2022, introduced earlier this month by House Judiciary Chairman Jerrold Nadler and Rhode Island Rep. David Cicilline, eliminates the section of the bankruptcy code that makes loans the one of the only non-dischargeable consumer debts.
This would allow private and federal loans to be canceled in bankruptcy court.
Under current law, federal student loans can only be canceled in “extremely rare cases,” according to members of Congress, if the borrower demonstrates that repaying the loan would cause undue hardship. This is a higher standard than that applied to other consumer debt, such as credit card debt or medical debt. Congress made private student loans non-dischargeable in bankruptcy in 2005.
“Cumulative student loan debt has overtaken credit card debt to become the second largest category of private consumer debt after mortgages,” members of Congress said in a statement. “Non-dischargeable student debt limits the career and life choices of student borrowers.”
Additionally, Massachusetts Senator Elizabeth Warren, also a Democrat, recently reintroduced the Consumer Bankruptcy Reform Act in the Senate, a broader bill that would also allow student borrowers to obtain relief in bankruptcy proceedings. Among other changes, his proposal replaces the two current bankruptcy chapters, Chapter 7 and Chapter 13, with a single system.
In the past, bills to make student loan debt dischargeable have received bipartisan support. The US Department of Education is also weigh potential policy changes.
This story was originally featured on Fortune.com
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