Some in Congress Are Trying to Protect Student Loan Debtors and Allow Loans to be More Easily Discharged in Bankruptcy

Democratic Senator Dick Durbin and Sens. Jack Reed (D-R.I.), Elizabeth Warren (D-Mass.), Patty Murray (D-Wash.), Sherrod Brown (D-Ohio) and Richard Blumenthal (D-Conn.) have proposed an amendment to the Economic Growth, Regulatory Relief and Consumer Protection Act.

The proposed legislation makes private student loan rehabilitation terms consistent with federal student loans and requires financial institutions to automatically seek correction of a borrower’s credit history once a successful rehab has been completed.

The amendment also contains the following changes.

Eliminates wage garnishment for borrowers making under 185 percent of the federal poverty line
and limits wage garnishment on private and federal student loans to 10 percent of discretionary
income for those who make more than 185 percent of the federal poverty line.

Ensures that private education loans are discharged when a borrower dies or becomes disabled.

Prohibits the acceleration of a student loan debt, also known as auto-defaults, for any other reason than if a borrower defaults due to missed payments.

Prohibits private student lenders from denying credit to individuals who qualify for protection under the Servicemember Civil Relief Act.

Wants to Restore Bankruptcy Protection

Restores private student loan dischargeability in bankruptcy.

  • Clarifies current law’s “undue hardship” exception to nondischargeability in bankruptcy as it applies to federal student loans by creating a rebuttable presumption that a debtor faces an “undue hardship” if the debtor is receiving disability benefits under the Social Security Act;
  • has been determined by the Secretary of Veterans Affairs to be unemployable due to a service-connected disability;
  • is a family caregiver of an eligible veteran;
  • provides for the care and support of an elderly, disabled or chronically ill household member or member of the debtor’s immediate family and the annual household income for the debtor is less than 200 percent of the official poverty guideline (about $24,000 for an individual and $48,000 for a family of four);
  • has income that is derived solely from retirement benefits under the Social Security Act and the annual household income for the debtor is less than 200 percent of the official poverty guideline;
  • or during the five-year period preceding the filing of the bankruptcy petition, the debtor was not enrolled in school and had a gross income of less than 200 percent of the official poverty guideline during each of those five years.
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Requires all student debt be forgiven in the event a service member dies in the line of duty, and federal student debt be forgiven if a service member dies of service-connected causes.

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