Senators Follow President’s Lead, Propose New Bill Allowing Private Student Loan Debt to be Discharged Through Bankruptcy


The American Journal of Medicine reported that more than half — 62% — of bankruptcy filings in the U.S. were due to illness or medical bills. Now, student loans may soon be added to the equation.

While some may consider it a legislative long shot, 13 Democratic U.S. Senators feel strongly that student loan borrowers should have bankruptcy as a debt relief option.

On Tuesday, President Barack Obama toyed with the idea of making it easier for student borrowers to discharge some of their student loan debt by filing for bankruptcy.

Taking the President’s hint, on Thursday, 13 Democrats in the Senate followed through by introducing a bill named the Fairness for Struggling Students Act of 2015. The proposed bill will treat student loans issued by private banks the same way that other kinds of private unsecured debt is treated in bankruptcy filings.

Currently, it’s all but impossible to eliminate student loans through personal bankruptcy; only in extremely rare circumstances are exceptions made. This is due, in part, to a change made to the federal bankruptcy code in 2005 that prevented student loans from being able to be discharged through bankruptcy.

A similar kind of protection that has been in place since 1978 also shields government-issued or guaranteed loans from bankruptcy. The bill proposed on Thursday aims to reverse the changes made in 2005, allowing student borrowers to once again be able to get rid of private loans through bankruptcy.

“Too many Americans are carrying around mortgage-sized student loan debt that forces them to put off major life decisions like buying a home or starting a family. We can no longer sit by while this student debt bomb keeps ticking,” said Senator Dick Durbin, a Democrat from Illinois and also a co-sponsor of the bill.

If the bill somehow manages to overcome the long odds it faces in a Republican-controlled Congress and actually becomes law, it will only cover a small portion of student loans. Private banks issue just 10% of all student loans and those would be the only ones eligible for discharge through bankruptcy. The remaining 90% of student loans are issued by the federal government, and these would continue to remain relatively untouchable.

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