Changing the bankruptcy provision in a decades-old law to allow students to declare bankruptcy on their student loans will provide the relief debtors are desperately searching for
Article originally published in the Massachusetts Daily Collegian
By Robert Weiner and Charlyn Chu
The federal student loan debt balance carried by Massachusetts residents amounts to nearly $31 billion. Almost a million people in Massachusetts--902,000 of the state's total seven million residents--are burdened with student loan obligations. A report on student debt for the University of Massachusetts system class of 2020 found that 69 percent of students graduated with student loan debt, with an average of $32,310 across the four universities. UMass Amherst graduates had an average debt of $32,928 in both federal and private student loans.
One year ago, Senate Majority Leader Chuck Schumer and Senate Majority Whip and Chair of the Judiciary Committee Dick Durbin pledged to journalist Blake Zeff in MSNBC documentary Loan Wolves that they'd move a student loan bill through Congress, or at least the Senate, where they have power for now. They promised to spearhead a solution, not by income-contingent repayment or by re-evaluating undue hardship claims, but to reform the bankruptcy code's treatment of student loans itself. They have yet to deliver.
In the documentary, Zeff makes Schumer aware of Durbin's work on the issue, to which Schumer responds, "It's something I would obviously look at." Not long after their conversation, Schumer says in a press conference, "It's outrageous that other people get to declare bankruptcy, but students can't."
Durbin's bill S.2598, the FRESH START Through Bankruptcy Act, would make federal student loan debt "dischargeable in a bankruptcy proceeding 10 years after the first loan payment is due." At the end of Loan Wolves, Durbin promises Zeff that "We're going to try everything legitimately possible to move the bill through the Senate this year."
Yet, it's an empty promise. Introduced August 4, 2021, the bill was read twice and referred to the Senate Judiciary Committee. Nothing has happened since. There is no excuse for a lack of action, especially when Zeff has told Durbin the bill is on Schumer's radar.
"We have to beg Schumer to give us a niche, a piece of the calendar so that we can call the bill... his personal commitment is essential," Durbin said in the documentary. "[Schumer] is convinced... he pledged to me that he will bring it to a committee this session," Zeff assured Durbin in response. With Schumer and Durbin on the same page, they must not go back on their word to reform the bankruptcy code's treatment of student loans.
The two have pressed the Department of Education in the past on changing administrative policies around undue hardship to make it easier to discharge student loans through bankruptcy. In November 2022, the Biden administration responded by making the process fairer with clearer legal standards around undue hardship. Despite this, most who file claims through a bankruptcy provision have been largely unsuccessful.
Schumer and Durbin know that fixing federal policy is just the tip of the iceberg. Without the threat of bankruptcy, college lenders can lend out extreme sums of money because of guaranteed repayment and colleges can continue hiking tuition costs. Therefore, the root of skyrocketing college costs lies in the bankruptcy code.
In 1988, a virtually unknown bureaucrat slipped two lines into the Higher Education Amendments, altering Section 523(a)(8) of Title 11. These two lines make it nearly impossible for student loans to be dischargeable through bankruptcy by eliminating the seven-year discharge provision, leaving the loosely defined "undue hardship" clause as the only way to discharge student loans through bankruptcy, a case-by-case standard that is extremely difficult to prove despite Biden's improvements.
In the documentary, Zeff uncovers the culprit behind these two lines: David Longanecker, former assistant secretary of post-secondary education at the U.S. Department of Education. Zeff confronts Longanecker, who admitted putting the language into the higher-education bill and still holds his view that "when people accept an obligation, they have a responsibility to attend to that," and if students did default, they "simply weren't acting in good faith." Apparently, bad planning by any business in the United States is entitled to bankruptcy protection, though.
As most student borrowers are 16- to 17-year-olds at the time they signed for a loan with fees hidden in fine print, why must they be the exception? Why is it that gambling debts and excessive shopping debts are easier to discharge in comparison? Why can Donald Trump abuse bankruptcy laws by filing for corporate bankruptcy six times to wipe away his debts, but students carry theirs to the grave?
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