Durbin Testifies at House Judiciary Subcommittee Hearing on Student Loan Bankruptcy Bill

WASHINGTON – U.S. Senate Democratic Whip Dick Durbin (D-IL) today testified at a House Judiciary Subcommittee on Antitrust, Commercial and Administrative Law hearing entitled “Oversight of Bankruptcy Law and Legislative Proposals.” Durbin testified about the Student Borrower Bankruptcy Relief Act of 2019, a bicameral bill he introduced with Senator Elizabeth Warren (D-MA), House Judiciary Committee Chairman Jerrold Nadler (D-NY-01), and U.S. Representative John Katko (R-NY-24) that would give Americans overwhelmed by student loan debt the option of obtaining meaningful bankruptcy relief. The bill would eliminate the section of the bankruptcy code that makes private and federal student loans nondischargeable, allowing these loans to be treated like nearly all other forms of consumer debt.

“Student loans trail you to the grave. This is a decision you’re making that’s going to be with you to the bitter end because you can’t discharge it in bankruptcy,” Durbin told subcommittee members. “Let’s do this change in bankruptcy. It wasn’t that long ago that people could discharge their loans in bankruptcy. Let’s return to that. I think it will give young people a second chance, but also be a dramatic boost to the economy.”

Most forms of debt, such as credit card debt and medical debt, can be discharged through the bankruptcy process. Only a limited number of debts, such as child support payments, alimony, overdue taxes, and criminal fines, are treated as nondischargeable in bankruptcy. However, current federal law also makes student loan debt nondischargeable except in extremely rare cases.

Student debt has not always been given special exemption by the bankruptcy code. Prior to 1976, federal and private student loan debt were both fully dischargeable. Congress then began steadily narrowing the grounds upon which student loan bankruptcy relief could be granted until, in 1998, federal student loans were made completely nondischargeable absent a showing of “undue hardship” which courts have construed to be nearly impossible to demonstrate. In 2005, Congress also made private student loans nondischargeable in bankruptcy. As a result, student borrowers who find themselves unable to repay their loans are now saddled with this debt for life.

The Student Borrower Bankruptcy Relief Act of 2019 is supported by organizations including Americans for Financial Reform, Association of Young Americans, Campaign for America’s Future, Center for Responsible Lending, Consumer Federation of America, Consumer Reports, National Association for College Admissions Counseling, National Association of Consumer Advocates, National Association of Consumer Bankruptcy Attorneys, National Consumer Law Center (on behalf of its low income clients), National Student Legal Defense Network, Student Debt Crisis, Public Citizen, U.S. PIRG and Young Invincibles.

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