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—
(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.
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.