Student loan debts could be wiped out through Durbin’s bankruptcy relief bill

Sen. Dick Durbin hopes his new bill can build in an escape clause for student loan borrowers who he says carry their debts to their graves.

The Student Borrower Bankruptcy Relief Act of 2019 introduced last month would eliminate a section of bankruptcy code that makes private and federal loans nondischargeable unless the borrower can show the debt presents an “undue hardship.” If passed, the act would allow the loans to be treated like nearly all other forms of consumer debt.

Forty-four million Americans owe more than $1.5 trillion in student loan debt — a figure that trails only credit card debt as the highest in the nation. The bill has picked up support from Sens. Tammy Duckworth, D-Ill. and Elizabeth Warren, D-Mass., and U.S. Reps. Jerrold Nadler, D-N.Y., and John Katko, R-N.Y.

“We’ve created a standard for discharge that is so high that in a recent survey across the United States, they could only find four cases despite the millions of people who have student debt . . . that were discharged in bankruptcy,” Durbin said Monday.

“People literally carry this debt to the grave. We have millions . . . of Americans under the age of 50 who are still paying off student loan debt and many who have reached retirement age who are still facing these debts that are not discharged. I think it’s time for that to come to an end,” Durbin said.

Durbin introduced similar student loan forgiveness measures last year in Congress’ banking bill. That amendment called for improving consumer protections for federal and private student loans as well as a student loan borrower Bill of Rights and restoring the possibility for the loans to be discharged through bankruptcy among other methods.

James Haller, a bankruptcy attorney, says those inundated by student loan debt are “honest Americans who took out their debt honestly with the intent of paying it back.”

“When it comes to student loans, the system has been broken down. The standard in the law is undue hardship but the way that’s been interpreted by the courts is that you have to demonstrate a certainty of hopelessness . . . and that’s crazy,” Haller said. “The last time I saw somebody receive a student loan discharge was somebody who was completely paralyzed from the head down and in that proceeding the creditor was arguing that he still should not receive a discharge so the bar is so incredibly high that it’s absolutely impossible to meet.”

Durbin said the issue is one that crosses party boundaries and the vast majority of the debt is owed to the federal government. The senator said he’s going to ask the judiciary chairman for a hearing on the bill because “it’s time to come to grips with this reality.” If he’s able to get the hearing, and then get the bill to the floor of the Senate, then Durbin believes there’s a chance to pass it.