The United States Capitol Building in Washington, D.C.
A new bill introduced to U.S. Congress at the beginning of May would allow individuals who file for bankruptcy to also discharge their student loan debt. Some critics warn that if the bill passes, it could cause big problems for the U.S. economy.
Initially covered by The Student Loan Report in mid-May, Bill H.R. 2366—Discharge Student Loans in Bankruptcy Act of 2017—was designed to help those in financial distress, especially student debtors. Right now, student loans are not eligible for cancellation by bankruptcy. If passed, this bill could potentially erase hundreds of billions of currently delinquent student loans.
The thought process behind the bipartisan bill follows a simple logic. If someone is experiencing such financial hardship that they have no other choice but to file for bankruptcy, then it is unfair to expect them to pay back thousands of dollars in student loan debt. In many cases, the bankrupt borrower won't be able to make payments, resulting in the loan being sent to collections where it will have a negative impact on the borrower’s credit rating.
It is no secret that the burden of student loan debt is affecting the economy. Currently, there are about 44 million Americans carrying a combined a $1.4 trillion. About 4 million student loan borrowers are in default according to The Student Loan Report's default rate. Many of these borrowers are unable to fulfill financial and personal goals such as buying a home or a car and even getting married.
What's even scarier is that over 27 percent of borrowers believe their loans can be discharged in bankruptcy, according to The Student Loan Report. These people may believe they have a safety net to fall back on in bankruptcy, possibly causing them to not take their student loan repayment seriously.
On top of this, the government owns many of the loans that would be discharged, so taxpayers would ultimately be footing the student loan discharges of H.R. 2366. Needless to say, a more readily available student loan discharge option, the major goal of this bill, could be too big a price to pay for taxpayers. This is a point that the opposition is sure to bring up in the future, but only time will tell if the objectives of this bill reach fruition.
Image Copyright © Lucia Fantasia