The Biden administration is reportedly considering expanding its efforts at targeted student debt forgiveness into a broader policy whereby “at least” $10,000 (some have advocated for up to $50,000) in student loans per borrower, possibly subject to an annual income cap, would be eligible for cancellation. There is a rough consensus that rising levels of student-loan debt are a problem, and proponents of debt relief note the aggregate amount outstanding has increased by roughly two-thirds over the past 10 years to a total of some $1.7 trillion. Largely overlooked in the debate are changes made to the U.S. Bankruptcy Code in 2005, which materially increased the difficulty of discharging student loans in bankruptcy, according to a commentary by Richard J. Shinder of Theatine Partners in today’s Wall Street Journal. The “undue hardship” standards that apply to the cancelation of student loan indebtedness create a high hurdle for discharge, as borrowers must meet various tests adopted by the courts. The difficulty in satisfying these requirements, along with the costs associated with filing for bankruptcy, results in little student debt being relieved in this manner. Unfortunately, the 2005 changes to the Bankruptcy Code, combined with the 2010 federalization of the student-loan market, have placed what is fundamentally a commercial matter — the repayment of financial obligations — squarely within the ambit of public policy. Initially as guarantor and now as lender to student borrowers, the federal government has a direct seat at the table. Having largely prohibited the resolution of student loans in bankruptcy subjects its ultimate disposition to political caprice. Read more. (Subscription required.)
*The views expressed in this commentary are from the author/publication cited, are meant for informative purposes only, and are not an official position of ABI.
