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Relief from the Student Loan Crisis Languishes in Congress

Posted on Feb 26, 2012

In 2011, Rep. Steve Cohen of Tennessee introduced a bill called the Private Student Loan Bankruptcy Fairness Act of 2011. Its purpose is to roll back bankruptcy law to pre-2005 provisions, i.e. make private student loans generally dischargeable in order to address the mounting student debt crisis that I have written about before on this site (see links below).

What's In the Bill?

The bill itself has three main provisions:

  1. It would make general education-purpose loans (i.e. not guaranteed by the government) dischargeable;
  2. It would maintain the nondischargeability (absent proof of undue hardship) of government-guaranteed student loans.
  3. It would ensure that non-profit-backed loans are only nondischargeable if substantially all the funds for the loan program are provided by a non-profit. This is as opposed to the current law, which makes them non-dischargeable even if only “part” of the program funding derives from a non-profit.

Where Is It Now?

Unfortunately, the bill was referred to a subcommittee in July 2011, where it remains awaiting further action. The Bankruptcy Law Network contacted Congressman Cohen and received the following comment:

“Although I held hearings and marked up the Private Student Loan Bankruptcy Fairness Act when I was Chairman of the Commercial and Administrative Law Subcommittee last Congress, the Republican leadership of the Judiciary Committee has not shown any interest in moving the bill forward in this Congress. Thanks to the recent report by NACBA, President Obama’s efforts to address the student loan debt crisis, and other press reports about the crushing student loan debt burden, we are continuing to bring attention to the bill and gaining additional cosponsors. I am hopeful that we will ultimately be able to pass the bill, particularly if control of the House changes hands again.”

What Is Being Done About It?

NACBA, the National Association of Consumer Bankruptcy Attorneys, is fighting for this change and presenting to the media and Congress evidence of how the student loan crisis is affecting people.  In the meantime, however, movement is unlikely until after 2013 when the new Congress sits after the November 2012 elections. It appears that the bill only has a chance of emerging from committee if the democrats retake the House.

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Steven J. Richardson
Bankruptcy, Collections, Student Loan, DUI and Traffic Court attorney in Woodbury, NJ.