The Hill reports that representatives from both political parties are in favor of discharging student loans in bankruptcy.
Senators Dick Durban (D) and John Cornyn (R) introduced a bill aimed at repairing how student loans work in bankruptcy. Rather than free college, this idea of student loans being dischargeable during bankruptcy earns support from both political sides.
From The Article:
“Over the past 30 years, a series of policy changes have made it more difficult for borrowers to have their student loans discharged in bankruptcy. These policy changes were driven by the idea that investments in education could not be transferred because the borrower would always retain the benefits acquired from their education. This would make sense if degrees paid off uniformly with large dividends, but the reality is that some investments in education fall short of that mark — unpredictably offering little or no value to the borrower.”
After it was made more difficult to discharge student loans in bankruptcy, Congress created income-driven-repayment programs or IDR’s. IDR’s were created to help loan borrowers pay back their student loans. IDR’s take your income into account. Then, they have you commit to paying back these loans at a reasonable pace based on your income. In theory, IDR’s were supposed to counterbalance the financial burdens of student loans. Buty in reality, IDR’s are falling short and needs serious reform. Discharging student loans in bankruptcy can help jumpstart this reform.
Many fear that people will take advantage of this bill and begin to abuse the bankruptcy system. The fear is that borrowers will take out extra student loans to live a lavish lifestyle while going to school and then immediately file bankruptcy so they don’t have to pay off their student loans at all, ensuring them free tuition and living expenses for the past 4+ years. This issue can be resolved through strict restrictions like making sure borrowers are required to be paying back consistently for several years before discharging student loans.