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Sen. Elizabeth Warren (D-Mass.) and House Judiciary Committee Chairman Jerrold Nadler (D-N.Y.) yesterday reintroduced the Consumer Bankruptcy Reform Act, bicameral legislation proposing to simplify and modernize the consumer bankruptcy system and make it easier for consumer debtors, according to a press release. Originally introduced in 2020, this legislation would replace the two separate consumer bankruptcy chapters known as chapters 7 and 13 with a single system available to all consumers, streamlining the filing process and reducing filing fees. The bill would also aim to ensure that families can care for themselves, their children, and their elderly parents during the bankruptcy process by helping renters with back rent avoid eviction, giving people a path to protect their homes and cars, and letting filers discharge local government fines. Read the full press release.

According to the press release, the House Judiciary Subcommittee on Antitrust, Commercial, and Administrative Law's hearing at 1 p.m. today will focus on the purported loopholes and abuses in the current consumer bankruptcy system and how the Consumer Bankruptcy Reform Act might provide improvements. Click here to watch a live webcast of the hearing at 1 p.m. ET.

President Biden’s plan to wipe out significant amounts of student loan debt for tens of millions of borrowers could cost about $400 billion, the nonpartisan Congressional Budget Office (CBO) said in a report yesterday, the New York Times reported. The CBO also said the full price tag of the plan could push even higher because Mr. Biden extended a pause on federal student loan repayments through the end of the year, which could end up costing some $20 billion. In August, Mr. Biden announced a plan to forgive $10,000 in debt for those earning less than $125,000 per year and $20,000 for those who had received Pell grants for low-income families. The CBO expects that 90 percent of the 37 million borrowers with direct loans from the federal government would take advantage of debt forgiveness once it becomes available. The White House indicated on Monday that it would push forward with its plan despite criticism from conservative critics who have vowed to launch legal challenges. Still, the official timing for debt relief is uncertain; the Department of Education said it would set up an application process by the end of the year. About 60 percent of student loan borrowers have received Pell grants, and a majority come from families making less than $30,000 a year. The Education Department estimates that 27 million borrowers will qualify for up to $20,000 in relief. Millions of other borrowers will be eligible for $10,000 in debt relief, as long as they earn less than $125,000 a year or are in households earning less than $250,000. Borrowers will be assessed based on the income they reported in 2021 or 2020.

The House passed a bill on Wednesday that allows spouses who combined their student debts under a federal program to split their loans, sending the legislation to President Biden’s desk, The Hill reported. Democrats have touted the bill for making hundreds of additional Americans eligible for loan forgiveness, which also allows some borrowers to escape joint loans in cases of divorce or domestic abuse. The legislation, titled the Joint Consolidation Loan Separation Act, passed in a 232-193 vote, with 14 GOP members joining Democrats in support. The Senate approved the bill by unanimous consent in June. Biden is expected to sign it into law — the Office of Management and Budget earlier this week said the administration supports the legislation. Under the measure, borrowers who are still tied to a joint consolidation loan — taken out through an Education Department program that was in existence for 13 years until 2006 — would have the opportunity to fill out an application requesting that the department split their credit into two separate direct loans.

When federal student loan borrowers take a breath from celebrating the cancellation of some or all of their federal student loans, millions of them could be in for an unpleasant surprise: While President Biden's sweeping student debt relief won't be subject to federal income tax, in seven states borrowers may have to pay state income tax on all those canceled loans, NPR.org reported. Before 2021, student debt cancellation was generally considered a form of income, and therefore taxable both at the federal and usually state levels. But in March 2021, the American Rescue Plan changed that, at least temporarily: Until the end of 2025, Congress said, the U.S. government will not consider canceled student loan debts to be taxable income. Now that the Biden administration has unveiled its sweeping new debt cancellation plan, this federal exemption is a really big deal. That's because most places follow the federal government's lead when it comes to income tax. "The majority of states that have an income tax essentially say, 'Whatever the federal government says is gross income, we say the same thing,'” explains John Brooks, a Fordham University professor who studies both tax policy and student loan law. But seven states are out of step with federal tax policy and have either said they will tax debt relief or still have policies that could require it, barring a change in state law. States where borrowers may be taxed for loan cancellation include: North Carolina, Indiana, Mississippi, Arkansas, Minnesota, Wisconsin and California. 

The Biden administration’s student loan forgiveness initiative is poised to face an array of legal challenges that could freeze the plan before it gets up and running, threatening a policy that has stirred fierce bipartisan debate and infighting among Democrats, the New York Times reported. The plan announced by the White House last week would wipe out significant amounts of debt for millions of Americans. Those earning less than $125,000 per year would have $10,000 in debt erased, and those who received Pell grants would get $20,000 in debt relief. While it fulfills one of President Biden’s campaign promises to help graduates who have fallen behind in their payments, the plan carries a significant cost — projected to be between $300 billion and $500 billion — to the federal government, which will not receive repayments that it is currently owed. Enacting such a major fiscal outlay through emergency executive powers has raised questions about whether Mr. Biden has the authority to carry out such a policy on his own, and many expect lawsuits and a protracted legal battle, including by those who stand to lose financially from the plan. Those who might try to claim such damages could include loan servicers who are missing out on processing fees or lawmakers who view the policy as an infringement on congressional budgetary authority. Some critics have compared Mr. Biden’s move to similar executive actions undertaken by former President Donald J. Trump, including his use of emergency powers to fund a border wall in 2019. Although that was different than canceling federal debt, opponents of the decision argued that Mr. Trump was abusing his authority by transferring Pentagon funds to pay for wall construction without congressional approval. The Supreme Court allowed the construction to go forward while the case worked its way through lower courts, but Mr. Biden halted work on the barrier upon taking office. Because of the expectation of a legal fight, some have warned that borrowers expecting forgiveness should not yet get their hopes too high. One of the main questions revolving around the student loan program is who — if anyone — has the legal “standing” to claim that they have been harmed by the policy and are entitled to file a lawsuit. The most likely outcome, legal experts say, is that banks or loan servicers who stand to lose money from fees that they would have been scheduled to collect file suits. Since many borrowers would owe less money overall, the amount that they pay each month to companies that manage loan payments would also shrink.