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HR 5043 Private Student Loan Bankruptcy Fairness Act 2010

Rep. Cohen (TN) and co-sponsor Rep. Davis (IL) have introduced a bill in the House to reinstate bankruptcy discharge rights to borrowers of private student loans.

Existing law reads (regarding exceptions to discharge):

(8) unless excepting such debt from discharge under this paragraph would impose an undue hardship on the debtor and the debtor’s dependents, for—
(A)
(i) an educational benefit overpayment or loan made, insured, or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or nonprofit institution; or
(ii) an obligation to repay funds received as an educational benefit, scholarship, or stipend; or
(B) any other educational loan that is a qualified education loan, as defined in section 221(d)(1) of the Internal Revenue Code of 1986, incurred by a debtor who is an individual;

The sticking point in the existing law is ‘undue hardship’. Courts have defined such a thing narrowly, making it impossible for student loans to be discharged. It’s also given private lenders the power to abuse their borrowers, refuse conversation and demand egregious penalties and interest rates without recourse.

HR 5043 reads:

Section 523(a)(8) of title 11, United States Code, is amended–

(1) by striking subparagraph (B), and

(2) in subparagraph (A)–

(A) in clause (i)–

(i) by striking `(i)’, and

(ii) by inserting `any program for which substantially all of the funds are provided by a’ after `unit or’, and

(B) in clause (ii)–

(i) by striking `(ii)’ and inserting `(B)’, and

(ii) by striking `or’ at the end.

3 replies on “HR 5043 Private Student Loan Bankruptcy Fairness Act 2010”

Rep Buck McKeon (CA-R) worked hard to privatize Sallie Mae. He also mismanaged his family business (Howard and Phil's Western Wear) so bad that he was forced to seek protection from creditors through bankruptcy. We taxpayers "bailed out" the too-big-to-fail Sallie Mae. Meanwhile Sallie Mae continues to pump payola into Buck's PAC funds. So why is it okay for powerful congressmen and huge privatized corporations to obtain protection through bankruptcy, but not citizens with student loans? I hope you can encourage your representative to support HR 5043 – mine won't support it because his name is Buck McKeon.

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If HR 5043 is passed, will private student loans currently in default still be discharged or does the new legislation pertain to non defaulted private loans.

My impression is that nothing will be 'automatically' discharged. The bill will simply re-establish bankruptcy protections for private student loans (It should extend to ALL student loans, imo; why should the govt be allowed to put their own citizens in a position of indentured servitude when no one else can?). This means that if a person wants their student loans discharged, s/he will have to declare bankruptcy.

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