If a new bipartisan bill is passed, student debtors around the U.S. may finally have a way out of crushing debt that persists for decades.
On Friday, Senators Dick Durbin (D-Illinois) and Elizabeth Warren (D-Massachusetts), as well as Reps. Jerrold Nadler (D-New York) and John Katko (R-New York), introduced the Student Borrower Bankruptcy Relief Act of 2019. The bill is designed to allow student borrowers to erase their student debt burdens by declaring bankruptcy.
“Long before I came to the Senate, I fought my heart out to keep student loans dischargeable in bankruptcy. But over and over again, Congress chipped away at this critical protection for student loan borrowers,” Sen. Warren stated in a press release issued by Durbin’s office. “The Student Borrower Bankruptcy Relief Act fully restores this protection, and I’m thrilled to work with Senator Durbin to fight for this legislation.”
While both federal and private student debt were dischargeable through bankruptcy in the 1970s, multiple Congressional actions have made it progressively harder for student debtors to get out of debt by declaring bankruptcy. Ever since 1998, federal student loans were essentially impossible to escape with bankruptcy — only those who demonstrated “undue hardship” were able to do so, though Durbin’s office said that’s been “nearly impossible to demonstrate” in the courts.
While declaring bankruptcy would essentially destroy the credit of student debtors for seven years, it would still arguably be an improvement over the current system. For many student debtors who are unable to find a good-paying job in their field, an income-driven repayment (IDR) plan is seen as an alternative to defaulting on their student loans.
However, some of these plans require student debtors to earn a poverty-level income for the length of their IDR plan in order to keep their monthly payments low enough to manage. When faced with the ball-and-chain of a decade of poverty wages, seven years of bad credit from a bankruptcy could be seen as a significant improvement.
Sen. Warren has arguably led the pack of 2020 presidential candidates in solutions to the $1.5 trillion student debt crisis affecting 44 million Americans. Last month, she rolled out a plan to cancel the debt loads of student borrowers earning less than $100,000 annually, who owe student debt of up to $50,000. This would cancel 95% of all student debt. A 2018 study by Bard College found that such a proposal could generate up to $1 trillion in new economic activity over a 10-year period.
Tom Cahill is a contributor for Grit Post who covers political and economic news. He lives in Bend, Oregon. Send him an email at tom DOT v DOT cahill AT gmail DOT com.