New law will allow borrowers of federal student loans to repay loans in case of bankruptcy

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WASHINTON (WREX). The new bill will enable needy borrowers to seek bankruptcy relief for federal student loans after a waiting period of ten years.

Senate Majority Whip Dick Durbin, Illinois, Chair of the Senate Judicial Committee, and Senator John Cornin, Texas, Senate Judicial Committee, announced today FRESH START Through Bankruptcy Law 2021

Currently, 45 million Americans have over $ 1.7 trillion in student loan debt. Unlike most other types of debt, student loans are not repayable in the event of bankruptcy, except in very rare cases.

IN FRESH START – Bankruptcy Law 2021 will carry out the following reforms:

  • Make federal student loans eligible for bankruptcy repayment ten years after the first loan is due, similar to the federal loan repayment option after the waiting period that was in effect until 1998;
  • Maintain the existing dismissal option for private student loans and federal student loans that have maturities of less than ten years;
  • Improve institutional accountability by creating regulations requiring colleges where more than one third of students receive federal student loans to partially reimburse the government if the student loan is subsequently repaid as a result of bankruptcy and if colleges have consistently high default rates and low interest rates , and ;
  • Provide student borrowers who have no real way to pay off their huge student loan debt by allowing bankruptcy to be an option to help them get back on their feet.

Accumulated student loan debt is the second largest consumer debt category after mortgages. Most forms of debt, such as credit card debt and medical debt, can be paid off in bankruptcy; Only limited types of debts, such as child support payments, alimony payments, late taxes and criminal fines, are considered non-repayable. Under federal law, student loan debt is non-repayable in the event of bankruptcy, except in the extremely rare case of “overwhelming hardship.”

“Student loan debt follows you to your grave. For years, I have supported allowing needy borrowers to repay their loans in the event of bankruptcy as a last resort. Our bipartisan law is finally giving student borrowers – some of them tricked into taking on costly loans by predatory commercial colleges – the chance to get back on their feet when they have no other realistic way to pay off their loans, ”Durbin said.

An invoice summary is available. here

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