New legislation filed by U.S. Rep. John K. Delaney (D-Md.) would make student loans dischargeable under bankruptcy, according to a news release. The Discharge Student Loans in Bankruptcy Act (H.R. 449) is aimed at helping people who are struggling with student loan debt. Under existing law, student loan debt cannot be discharged.
The Consumer Financial Protection Bureau estimates there is $1.2 trillion in outstanding student loan debt in the U.S. and more than 7 million people in default on their loans. Student loan debt is one of the top forms of debt collected in the industry. According to the Impact of Third-Party Debt Collection on National and State Economies survey by ACA International and Ernst & Young, student loan debt was 25.2% of total debt collected in 2013.
"While student loan debt is a complex problem that will require many solutionsincreased support for grant programs, efforts to increase affordability, improved consumer educationwe also need to reform our laws to help those with the absolute greatest need," Delaney said. "Right now, there is effectively a huge student loan loophole in bankruptcy law thats hurting real people. Bankruptcy has long been an option of last resort for individuals facing an irresolvable level of debt; bankruptcy isnt easy or enjoyable, but its a necessary part of our financial system. It doesnt make sense for students with heavy debt burdens to be worse than someone with credit card, auto loan debt or mortgage debt."In 2013, seven in 10 (69%) graduating seniors at public and private nonprofit colleges had student loans, according to the Project on Student Debt and The Institute for College Access & Success.
Nationally, the average debt for these graduates was $28,400, 2% higher than for public and nonprofit graduates in 2012.