Congressman Introduces Bill to Forgive Student Loan Debts during Bankruptcy

[Suzanimal]

A lawmaker has filed legislation in Congress to allow student loan debt to be treated like other forms of debt that can be discharged in bankruptcy proceedings.

Rep. John K. Delaney, D-Md., introduced the Discharge Student Loans in Bankruptcy Act (H.R. 449).

“Student loan debt is dragging down economic growth, keeping the American Dream out of reach for many and is a monthly strain for millions,” Delaney said in a statement. “While student loan debt is a complex problem that will require many solutions—increased support for grant programs, efforts to increase affordability, improved consumer education—we also need to reform our laws to help those with the absolute greatest need. Right now, there is effectively a huge student loan loophole in bankruptcy law that’s hurting real people."


Student loan debt has been mounting as the cost of college tuition continues to rise. According to a study by the Institute for College Access & Success, 69 percent of graduates from the class of 2013 graduated with student loan debt, owing an average of $28,400. Under current law, student loan debt is treated differently than other forms of debt and cannot be discharged.

"Bankruptcy has long been an option of last resort for individuals facing an irresolvable level of debt; bankruptcy isn’t easy or enjoyable, but it’s a necessary part of our financial system," Delaney added. "It doesn’t make sense for students with heavy debt burdens to be worse than someone with credit card, auto loan debt or mortgage debt. Every member of Congress from every state in the country has constituents who are struggling severely because of student loan debt. At the very least we should have some basic fairness in the law.”

Delaney has backed several bills focused on student loans and financial aid. He is also a cosponsor of the Middle Class CHANCE Act, which increases support provided by Pell Grants. In the previous congressional term, Delaney voted for legislation in the House to prevent student loan rates from rapidly increasing and cosponsored the Truth in Tuition Act, which requires institutions to provide multi-year tuition and fee schedules.

http://www.accountingtoday.com/news/education-planning/congressman-introduces-bill-to-forgive-student-loan-debts-during-bankruptcy-73395-1.html

[NACBA]

Wait, I know how this goes.

The law is passed and 1000s of college grads discharge these loans.

Then the banks who don't get repaid go to Congress for a Bailout.

The taxpayers get screwed again.

[ghengis86]

Wait, I know how this goes.

The law is passed and 1000s of college grads discharge these loans.

Then the banks who don't get repaid go to Congress for a Bailout.

The taxpayers get screwed again.

Well, maybe. But student loan debt should be discharged in bankruptcy just like any other debt. In a functioning market, defaulting on loans would make lenders more careful about who they lend to and at what rates. And if every mouth breather couldn't get a loan to go to college, the price of tuition would drop.

As it stands, university gets the cash, the lender gets a guarantee of payment enforced by Uncle Sam and another serf is born. And when loan defaults spike and threaten to kill a TBTF, Uncle Sam floods the bank with borrowed/taxed money. What a racket.

Heads I win; tails, you lose.

[ghengis86]

Wait, I know how this goes.

The law is passed and 1000s of college grads discharge these loans.

Then the banks who don't get repaid go to Congress for a Bailout.

The taxpayers get screwed again.

You forgot, university still keeps the cash and skyrocketing tuition rates and Mr College Grad is still flipping burgers.

[jbauer]

So you guys think its ok to not pay your bills? I got a better solution. Don't spend more then what you have. Don't take out a loan you cannot repay. Problem solved.

No need for legislation. Just honest, responsible people.

[NACBA]

So you guys think its ok to not pay your bills?

No need for legislation. Just honest, responsible people.

Well, that Constitution thingy that we all love does provide for this

Article I Section 8...

[r3volution 3.0]

If they simultaneously eliminated the student loan program, I'd be all for it.

[angelatc]

If they simultaneously eliminated the student loan program, I'd be all for it.

This. But without that caveat, it's absolutely the dumbest idea in the world. Every single student in the country will declare bankruptcy as soon as they graduate, while their income is still low enough to do so.

It is the same thing as handing out free college educations.

Poor bastards. The dollar isn't inflating, so the debt isn't vanishing as fast as they want it to.

[angelatc]

Well, that Constitution thingy that we all love does provide for this

Article I Section 8...


You mean the sentence that gives Congress the right to write uniform bankruptcy laws across all the states?

[heavenlyboy34]

This. But without that caveat, it's absolutely the dumbest idea in the world. Every single student in the country will declare bankruptcy as soon as they graduate, while their income is still low enough to do so.

It is the same thing as handing out free college educations.

Poor bastards. The dollar isn't inflating, so the debt isn't vanishing as fast as they want it to.
Not exactly. If the law passed, the sharks in the student loan industry would be forced to operate rationally like free market lenders do. As Delany points out in the OP:

"Bankruptcy has long been an option of last resort for individuals facing an irresolvable level of debt; bankruptcy isn’t easy or enjoyable, but it’s a necessary part of our financial system," Delaney added. "It doesn’t make sense for students with heavy debt burdens to be worse than someone with credit card, auto loan debt or mortgage debt. Every member of Congress from every state in the country has constituents who are struggling severely because of student loan debt. At the very least we should have some basic fairness in the law.”
Without being a GSE, no one in their right mind would loan an 18-20 year old kid 20,000+ FRNs to major in underwater basket weaving or whatever nonsense without a plan to pay it back plus interest. (and maybe not finish in 4 years, or change majors halfway through-both of which are fairly common)

[heavenlyboy34]

You mean the sentence that gives Congress the right to write uniform bankruptcy laws across all the states?

Your beloved Constitution gives Congress authority to write all sorts of nonsense laws.

[angelatc]

Your beloved Constitution gives Congress authority to write all sorts of nonsense laws.

It is also Ron Paul's beloved constitution. And yes, it specifically outlines which areas Congress is allowed to regulate.

[angelatc]

Not exactly. If the law passed, the sharks in the student loan industry would be forced to operate rationally like free market lenders do. As Delany points out in the OP:

What sharks are you talking about? The government took over all the student loans.

A much better plan would be to let corporate america decide which students and programs to bankroll. But the libs would pretty much freak at the idea of actually training promising future workers in anticipation of demand.

[heavenlyboy34]

What sharks are you talking about? The government took over all the student loans.

A much better plan would be to let corporate america decide which students and programs to bankroll. But the libs would pretty much freak at the idea of actually training promising future workers in anticipation of demand.
You think the FedGov handles all that? :rolleyes: Hell no! The Feds are too stupid to turn a profit on an industry EVERYONE uses (mail delivery). When you get a student loan, you get it via a 3rd party like Sallie Mae or Mohella. (the DoE works directly through Mohella, formerly Direct Loans) Cronyism-it's teh 'Murican Way.

[UWDude]

So you guys think its ok to not pay your bills? I got a better solution. Don't spend more then what you have. Don't take out a loan you cannot repay. Problem solved.

No need for legislation. Just honest, responsible people.

Well I am starting to. I have been paying off my debt... ...but I am not sure how wise that is. If college becomes "free", do I get a refund? Or do I get taxes and the empty bag?

[jbauer]

Very simple, did you agree to pay it back? After that its water under the bridge. Basically if the Govt agrees to "pay" for 2 or 4 yrs of school, it'll become worthless. Much like when the FED fires up the printing press


Well I am starting to. I have been paying off my debt... ...but I am not sure how wise that is. If college becomes "free", do I get a refund? Or do I get taxes and the empty bag?

[angelatc]

You think the FedGov handles all that? :rolleyes: Hell no! The Feds are too stupid to turn a profit on an industry EVERYONE uses (mail delivery). When you get a student loan, you get it via a 3rd party like Sallie Mae or Mohella. (the DoE works directly through Mohella, formerly Direct Loans) Cronyism-it's teh 'Murican Way.

Yes, but the government still writes all the terms. Those people are basically just administrators, not providers. And in any event, the solution isn't just to provide everybody with free college. It is to allow more providers to enter the market.

[RonPaulFanInGA]

Democrat bill in a GOP Congress.

Nothing to see here people. It's dead on arrival for the next two years, at a minimum.