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CLLA Update White House to Review Bankruptcy Opiton for Student Loans

Sharon Edmondson, Washington Legislative Team Member | April 08, 2015

On Tuesday the Obama administration said they will consider new measures for student loans and bankruptcy. The “student aid bill of rights” as the administration is calling a series of new proposals, would have the Education Department, the Treasury and the Consumer Financial Protection Bureau consider whether students with loans should have the protections that consumers now have on other debt. The proposal also would establish a system by the middle of next year for students to register complaints about loan services.

The most notable proposal could affect the treatment of student loans in bankruptcy. The Education Department will issue information by July 1 highlighting the factors that courts have accepted as proving “undue hardship” to allow loans to be discharged. The department, as well as the Treasury and CFPB, will recommend statutory and regulatory changes to apply consumer protections for other debt to student loans, including modifying bankruptcy proceedings, which are due by October 1.

Also, by July 1, the Education Department will work with the Social Security Administration on a plan to identify borrowers receiving Social Security disability benefits for a “total and permanent” disability who are eligible for a total discharge of their student loans. By July 1, 2016 the Education Department will establish a complaint system against student loan servicers which will allow borrowers to monitor the status of complaints until they are resolved.

Senator Alexander (R-TN) the chairman of the Senate, Health, Education, Labor and Pensions Committee has asked President Obama to discuss his proposals with Congress as he had done in the past when the student loan rates were being negotiated. Members of Congress are set to reauthorize the Higher Education Act, the law that broadly governs student loans and grants, this year. On the democratic side of the Senate aisle, Senator Murray (D-WA) applauded the proposed changes and urged Republicans to work with the democrats on student debt.

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