Legislation & Lobbying

Obama takes steps to allow more student loans to be discharged during bankruptcy

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President Barack
Obama. Rena Schild

President Obama signed an executive action on Tuesday that would make it easier to expunge certain types of student loans for those who file for bankruptcy.

Currently, student loan debt is dischargeable in bankruptcy only by those who can show undue hardship, a standard that is very difficult to meet, as the courts have interpreted it. If the executive branch decides to propose legislation and it is enacted, more debtors would potentially be able to eliminate their student loans, reports the Wall Street Journal (sub. req.). However, it is unclear at this point how many debtors would be affected and what the new standard for discharge might be.

In a speech Tuesday at Georgia Institute of Technology, President Obama announced a Student Aid Bill of Rights that is being implemented by an executive action, the Washington Post (reg. req.) reports. A White House press release explains what the bill of rights encompasses.

A Tuesday White House memorandum provided by the Post outlines a plan to centralize student loan payment information, make it easier for borrowers to get loan complaints addressed administratively and improve customer service.

The memo also directs the Secretary of Education, by July 15, 2015, to “issue information highlighting factors the courts have used in their determination of undue hardship, to assist parties who must determine whether to contest an undue hardship discharge in bankruptcy of a federal student loan.”

In his speech, the president suggested relief might be forthcoming as well concerning private student loans.

Obama has asked the the Consumer Financial Protection Bureau, the Department of Education and the Treasury Department to make recommendations by Oct. 1, concerning any needed changes to bankruptcy laws and other laws and regulations, Reuters reports.

Some 40 million Americans have student loans totaling approximately $1.3 trillion, the White House says. The average debt is about $28,000.

Related coverage:

ABAJournal.com: “Citing his own law school debt, Obama expands repayment caps on student loans”

See also:

ABAJournal.com: “7th Circuit OKs $25K student-loan discharge for ‘destitute’ paralegal”

ABAJournal.com: “8th Circuit Says Lawyer Can’t Discharge $360K in Student Debt”

ABAJournal.com: “9th Circuit OKs discharge of $53K in student-loan debt for law grad working as a probation officer”

ABAJournal.com: “Expert: Law grad can repay entire $215K student loan debt by 2020 if he lives with his parents”

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