Reps. Steve Cohen (D-Tenn.) and Danny Davis (D-Ill.) on Wednesday introduced legislation that would allow privately issued student loans to be discharged in bankruptcy, InsideARM.com reported on Friday. This is the fifth time a bill like this has been introduced in the House, but Cohen feels it stands a better chance now given the current focus on student loan debt, including a reported rise in student loan debt among members of Congress. The bill, H.R. 532, would amend the U.S. bankruptcy code to allow private student loans to be discharged in bankruptcy proceedings. A report from the Consumer Financial Protection Bureau (CFPB) last year indicated that some $150 billion of the $1 trillion in outstanding student loan debt was from private lenders. But the growth in private student loans is likely to slow in coming years. The Student Aid and Fiscal Responsibility Act, which got attached to and passed with the healthcare reform bill in 2010, effectively killed federally guaranteed private student lending. Going forward, all student loans that would have been previously guaranteed by the government are going to be originated directly by the U.S. Department of Education. Cohen’s bill would not allow federal direct loans to be discharged in bankruptcy.
