Let’s stop the nonsense about absolute student loan forgiveness.
I think we can all agree that if a student who never got a degree after incurring student loan debt, and is in a low paying job, that student should be afforded some relief as long as they can prove that they do not have the ability to pay the debt. As noted in last week’s WSJ, this would level the playing field between the haves and have nots. The place to do this is in Bankruptcy Court. The mechanisms are already in place and have worked fairly well for the LAST 15 YEARS. Between exemptions that are allowed with respect to property that can be protected and the means test as the criteria on income and ability to pay, this would ferret out the affluent who do not need this relief and help the ones who really need it and deserve it.
In order to instill true student loan relief in bankruptcy, we only need a couple of tweaks to the existing law.
The first was proposed last year – simply remove the student exception to discharge in 11 U.S.C Section 523.
The second would be to increase/modify the debt limits to determine eligibility for Chapter 13, which is controlled by Section 109. At present, the unsecured debt limitation for Chapter 13 is approximately $390k. In order to deal with the entire student loan population, the debt limit should be modified to differentiate between student debt and all other debt – keep the non-student loan debt limit at $390k and insert a higher limit of $1million including student loans.
The third tweak would be to (a) extend the term of a Chapter 13 Plan to 7 years for any debtor whose student loan debt comprises more than 50% of their unsecured debt; and (b) require that the plan payment be reviewed annually for those debtors by providing the Ch 13 Trustee with an updated Schedule of Income and Expenses. This will also satisfy the requirement that a Ch 13 debtor devote all of their net disposable income to their Ch 13 Plan.
There it is in a nutshell – what is so hard???
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