Legislation that would restore struggling borrowers’ right to eliminate student loans through bankruptcy has gained bipartisan support in the Senate, building momentum for a legal change long sought by consumer advocates, WSJ Pro Bankruptcy reported. Sens. Richard Durbin (D-Ill.) and John Cornyn (R-Texas) yesterday announced the "Fresh Start Through Bankruptcy Act," which would allow borrowers who file for personal bankruptcy the ability to discharge taxpayer-backed student loans after a 10-year waiting period. The legislation would also require colleges to partially repay the government for the cost of discharged loans if their students have consistently high default rates and low repayment rates, lawmakers said. About 45 million Americans hold roughly $1.7 trillion in student loans, more than 90% of which is guaranteed by taxpayers, lawmakers said. In March 2020, in response to the COVID-19 pandemic, principal payments and interest accrual on student loans guaranteed by the government were paused. The moratorium was extended earlier this year by President Biden to at least Sept. 30. Expiration of that moratorium would again expose defaulting borrowers to collection action. The Education Department is evaluating whether to relax the government’s stance on when borrowers should be able to discharge student loans, continuing a review started in 2018 by the Trump administration. President Biden has also considered forgiving some student-loan debt through executive action and said he would support forgiving up to $10,000 in student debt for every borrower. Read more.
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ABI’s Commission on Consumer Bankruptcy submitted a written statement for yesterday’s Senate Judiciary Committee hearing on student loan bankruptcy reform. To view the statement, please click here.
