Proposed Bill Eliminates Student Loan Discharge Exception

On September 8, 2015, Michigan Congressman Dan Kildee introduced a bill in Congress intended to reduce the burden on students and their families caused by the ever-increasing costs of higher education and the financial stress of student loans. H.R. 3451. The proposed legislation removes student loans from section 523(a)’s exceptions to discharge, thereby clearing the way for student loans to be discharged in bankruptcy just as credit card debts and car loans are currently dischargeable. In a statement issued by Mr. Kildee’s office, the necessity for the legislation was founded on his concern that “[s]tudent loan debt has soared in recent years, and there are now over 40 million federal and private student loan borrowers who collectively owe $1.2 trillion in student loans. The average student has $28,400 of loan debt, and total student loan debt in the U.S. has now surpassed credit card and auto loan debt totals.” In a press conference, Mr. Kildee explained: “It’s increasing[ly] clear that well educated society is absolutely necessary to a sustainable economy and to an equitable society that more fairly allocates the vast wealth that we create in this nation. The path to doing that is to make college affordable to more and more people. I think it’s important for us to remind ourselves that a college education for a young person in our state is valuable not just to them [but] for all of us and we should be willing to invest in it.”

Mr. Kildee also introduced two other bills dealing with student loans, one of which would exempt Pell Grants and scholarships from income taxes, and the other which would eliminate some private lenders’ unfair practice of automatically treating loans as being in default when a student’s cosigner dies even where the payments on those loans are current.