August 4, 2021
Senate Judiciary Committee on Student Loan Bankruptcy Reform
On August 3rd, the Senate Judiciary Committee held a hearing on the dischargeability of student loans in bankruptcy. At the hearing, Senator Durbin (D-Ill) and Senator Cornyn (R-Texas) introduced the ‘‘FRESH START Through Bankruptcy Act.’’
The hearing focused on the perceived need to provide debt relief to student borrowers. The legislation appears only to impact federal student loans, not private student loans. Notably, based on conversations on the Hill, the biggest obstacle to the bill’s enactment will be the budgetary impact of the federal deficit. As federal student loans are wiped out, the federal government as the lender is expected to suffer heavy financial losses in the first two years.
It is important to note that, should the legislation become law and spur a number of new consumer bankruptcy filings, other types of loans would also be subject to discharge in the bankruptcy proceeding.
At this time, it appears that the Senate may attempt to pass the ‘‘FRESH START Through Bankruptcy Act’’ in September or October of 2021. As we noted in a previous update, the House of Representatives held a similar hearing earlier in July. We expect some activity in the House as well.