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Lawmakers Push Bill Allowing Student Debt to Be Discharged in Bankruptcy

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Rep. John Delaney, D-Md., introduced bipartisan legislation Friday to allow student debt to be discharged in bankruptcy. 

The Discharge Student Loans in Bankruptcy Act (H.R. 2366) reforms federal bankruptcy rules to establish parity between student loan debt and other forms of debt. Rep. John Katko, R-New York, is the lead republican co-sponsor of the bill.

As it stands now, student loan debt cannot be discharged. 

“Student loan debt is dragging down economic growth and keeping the American Dream out of reach for many,” said Delaney in a statement. “While student loan debt is a complex problem that will require many solutions — increased support for grant programs, efforts to increase affordability, improved consumer education and transparency — we also need to reform our bankruptcy laws to help those with the absolute greatest need.”

The “huge student loan loophole” in bankruptcy law, he continued, is “hurting real people.”

Total student loan debt in the United States in 2016 reached a record level of $1.3 trillion dollars, Delaney said in citing data from the Federal Reserve Bank of New York, “the 18th consecutive year with a cumulative increase.”

Every member of Congress from every state “has constituents who are struggling severely because of student loan debt,” he added. “At the very least we should have some basic fairness in the law.”

Katko added that “addressing the high cost of college and the crushing burden of student loan debt requires innovative and thoughtful changes in policy.”  

While discharging debt in bankruptcy “is a last option for many, it should not be the case that student loan debt is the only form of debt that cannot be discharged.”

— Check out 16 Best & Worst 529 College Savings Plans of 2016: Morningstar on ThinkAdvisor.

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