August 11, 2021Client Alert

Student Loan Bankruptcy Reform: A Bipartisan Effort

On August 3, 2021, the Senate Judiciary Committee held a hearing to examine student loan bankruptcy reform. Committee members and witnesses highlighted the unfair treatment of student loan debt under the bankruptcy code and the rigid standard borrowers must meet to discharge student loans.

U.S. Senators Dick Durbin and John Cornyn introduced The Fresh Start Through Bankruptcy Act to address the growing bipartisan consensus that struggling borrowers need student loan bankruptcy reform.

The bipartisan bill would allow borrowers to discharge federal student loans 10 years after the first loan payment is due. The bill also contains accountability measures for colleges and schools with consistently high default rates. Senator Cornyn called on universities to help fix the current student loan crisis by adhering to smarter lending practices and stated that schools must face some accountability as Congress looks to reform the current system.

The Committee acknowledged the immediate need to address the $1.7 trillion student loan crisis impacting over 45 million Americans. While there have been many recent bankruptcy decisions on discharging private student loans, The Fresh Start Through Bankruptcy Act will only impact federal student loans—representing over 90% of all student loans.  

Unless and until this bipartisan bill becomes law, borrowers must still satisfy the infamous Brunner test and prove an “undue hardship” in order to discharge student loans in bankruptcy.

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