Left Unveils New Plan To Allow Cancellation Of Student Loans In Bankruptcy

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One of the most frustrating features of student loan debt for the millions of American students struggling to pay it down is the fact that it’s extremely difficult to discharge the debt in bankruptcy. Americans can typically shed medical debt, credit-card debt and other obligations, but in most cases, their student loans will follow them to their grave.

Given the massive outstanding notional value of mostly-federally-backed student loans ($1.5 trillion and counting), Elizabeth Warren’s plan to cancel $640 billion of the debt was applauded by millions of students who see no other way out from under the burden, while pretty much everyone else was left wondering where their next handout would come from, or whether the government would reimburse them for the loans they’ve already paid off.

But perhaps after recognizing that mass student loan defaults could pose a systemic threat to the financial system if millions of students simply stop making payments, expecting the loans would simply be forgiven, Warren appears to have pivoted to a different strategy.


In partnership with Sen. Dick Durbin, Warren has introduced the “Student Borrower Bankruptcy Relief Act of 2019”, a Senate bill that would amend American bankruptcy law to allow student debt to be forgiven during bankruptcy.

Though a similar bill was introduced in the House back in 2017, this marks the first time the Senate has taken a run at it.

Here’s more from a press release issued by Durbin’s office.

“Filing for bankruptcy should be a last resort, but for those student borrowers who have no realistic path to pay back their crushing student loan debt, it should be available as an option to help them get back on their feet,” Durbin said.

Meanwhile, a group of House Democrats led by Jerry Nadler introduced a corresponding bill in the House.

This isn’t Durbin’s first time around the cancel-student-loan-debt merry-go-round: He has previously introduced bills to cancel privately-issued student loan debt, among other measures. 

For the record, a 1976 law bars Americans with loan debt from discharging the debt in bankruptcy unless they can prove “undue hardship”, a term that was left undefined. Judges have, over time, set a high threshold for what constitutes “undue hardship”.

Of course, allowing these loans to be discharged in bankruptcy would probably cause interest rates to jump for everyone else. But once the federal government embraces MMT, none of this will matter anyway.

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