Reps. Katko, Delaney sponsor bill that would let student loan borrowers get bankruptcy discharge

U.S. Reps. John Katko (R-NY) and John Delaney (D-MD) filed legislation to reform federal bankruptcy rules to allow people to discharge their student loan debt when they file bankruptcy.

Currently, unlike other forms of debt, student loan debt cannot be discharged. The Discharge Student Loans in Bankruptcy Act would allow student loan debt to be discharged in bankruptcy, meaning, borrowers would no longer be required to pay the debt in bankruptcy.

“Addressing the high cost of college and the crushing burden of student loan debt requires innovative and thoughtful changes in policy,” Katko said.  “In the case where financially stressed student loan borrowers have no other option but to seek bankruptcy relief, these individuals are unable to discharge their student loan debt.  While this is a last option for many, it should not be the case that student loan debt is the only form of debt that cannot be discharged and the measure that I’ve put forth with Rep. Delaney corrects that problem.”

Student loan debt in the United States reached a record level of $1.3 trillion dollars last year. It was the 18th straight year with a cumulative increase, according the Federal Reserve Bank of New York.

“Student loan debt is dragging down economic growth and keeping the American Dream out of reach for many,” Delaney said. “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 and transparency – we also need to reform our bankruptcy 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.”

He said it does not make sense for students with heavy debt burdens to be worse off than someone with credit card debt or mortgage debt.