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The "New" New Legislation on Student Loans and Bankruptcy

posted by Melissa Jacoby

AbstractSenator Harkin's discussion draft of the Higher Education Affordability Act (described here) is expected to include a provision restoring bankruptcy relief from private for-profit student loans. A few years ago, I offered justifications for that move here. Prof. Scott Pryor agrees.

But wait, there's more. S.2471, The Medical Bankruptcy Fairness Act of 2014, introduced by Senator Sheldon Whitehouse, co-sponsored by Senator Elizabeth Warren. Section 6 would offer relief from student loans for some bankruptcy filers. Take a look. 

Abstract image courtesy of Shutterstock



If enacted this bill will become known as the “medical marijuana” of the student loan discharge.
Doctors can help students discharge their loans by filing affidavits in support of the debtor’s declaration they haven’t contrived their medical debts in order to qualify for student loan discharge - kind of a “drug card” if you will.
The Hippocratic Oath trumps law.
I’m glad something does.
But wait, it is easier than that to game this amendment in order to discharge a student loan.
After graduation take a minimum wage job and seek therapy from a sympathetic Psychiatrist for depression and run up the bill to over 10% of your gross income - what is that, a couple of sessions.
So nix the red herring medical debt requirement and just discharge student loans for qualified debtors.

@Robert White - Thanks for the comment. If people react to this bill with how I'm reading your last sentence - that the bill is too restrictive in its relief from student loans - you won't hear complaints from me.
At the same time, I don't find the parade of abuse argument too plausible given the various other restrictions and oversight in the consumer bankruptcy system. And those kinds of arguments must be weighed against the benefits of expanding relief. Cost-cost analysis, as I call it, isn't enough to maximize the benefits of bankruptcy and consumer protection legislation to individual households or to the economy at large.

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