Many people dream of getting a college degree from one of Indiana’s many fine universities, but this education comes at a steep price in the form of high tuition rates, housing, books and other fees. This means people may incur tens or even hundreds of thousands in student loan debt. When a person’s post-college career does not pay enough to make even minimum payments on their student loans they may consider filing for bankruptcy. Unfortunately, discharging student loans through bankruptcy is notoriously difficult if not impossible. Some lawmakers understand the problem and are looking to change it.
The problem with student loan debt and bankruptcy
As of now, 45 million people in the United States hold a combined $1.7 trillion in student loan debt. Some debts such as credit card debt and medical debt can be discharged through bankruptcy, but it is incredibly rare for student loan debts to be discharged through either Chapter 7 or Chapter 13 bankruptcy. Currently, a person must prove “undue hardship” to have student loan debts discharged through bankruptcy, which is very difficult to do.
The “FRESH START Through Bankruptcy Act of 2021”
A bipartisan bill known as the “FRESH START Through Bankruptcy Act of 2021” has been introduced in Congress. This bill aims to address the problem with student loan debt and bankruptcy. The Act would make federal student loan debit eligible for a bankruptcy discharge after 10 years following the due date of the first loan payment. The existing undue hardship discharge would remain available for private student loans and federal student loans that do not meet the 10-year threshold. The Act would also mandate that colleges with more than one-third of pupils receiving federal student loans to provide the government with a partial refund if a pupil’s loan is discharged through bankruptcy and the college has a history of high default rates and low repayment rates.
Learn more about your bankruptcy options
This bill provides hope to those who have no feasible means of paying back overwhelming student loan debt. As it stands this bill remains that — a bill. Current law on bankruptcy and student loan debt still stands. Still, filing for bankruptcy may help some debtors by extinguishing many other debts thus freeing funds that can be used to pay student loan debt. Our firm’s bankruptcy website may be a useful resource for those in Indianapolis considering filing for bankruptcy.