Durbin: Now Is The Time For The Senate To Help Families Buried In Student Loan Debt

Senator introduces amendment that would allow some struggling student loan borrowers to receive bankruptcy protections under “undue hardship” exception

WASHINGTON – In a speech on the Senate floor, U.S. Senator Dick Durbin (D-IL) today introduced an amendment to the Financial Services and General Government bill – part of the “minibus” appropriations package being considered this week by the Senate – to make it easier for some struggling student loan borrowers to receive discharge of their student loans in bankruptcy under the “undue hardship” exception.  

"It is time for the Senate to get serious about the student loan crisis in America," Durbin said. “An American who graduated college in 2015 with a four-year degree owed an average of $30,100. That debt is often much higher for many Americans, if they decide to go on to graduate school or for unfortunate attendees at for-profit colleges.”

Video of Durbin’s remarks on the Senate floor is available here

Audio of Durbin’s remarks on the Senate floor is available here.

Durbin’s amendment would bar the use of federal funds to pay contractors to contest “undue hardship” claims in bankruptcy court when the claims are brought by certain categories of borrowers who face severe hardship. Those categories include:

  • Veterans who have been deemed unemployable because of a service-connected disability;
  • Family caregivers of a veteran, or an elderly or disabled family member;
  • People who are receiving Social Security disability or whose only income is Social Security payments; and
  • Borrowers who have finished school but have spent at least five years earning a low income – less than $24,000 per year. 

“This issue of student loan debt is challenging. Let’s not run away from it, let’s face it honestly. Let’s give these four groups – including disabled veterans and the caregivers who watch them – an opportunity to get their student loans discharged,” Durbin continued. 

Currently, most types of debt can be discharged in bankruptcy, but not student loans. In 1998, Congress determined that federal student loans would be non-dischargeable in bankruptcy unless the borrower could demonstrate that he or she faced an “undue hardship.” Courts have interpreted the undue hardship standard to have such a high bar that there is no realistic chance for student borrowers to meet it and get their loans discharged. 

The Department of Education has contracted with companies like Educational Credit Management Corporation, a student loan guaranty agency that collects on defaulted federal student loans and that is notorious for aggressively challenging and appealing borrower claims of undue hardship in bankruptcy court.  In the face of these aggressive litigation tactics, most student loan borrowers do not even try to pursue undue hardship claims, even if the hardships they face are severe. A recent Wall Street Journal report found that in 2017, out of the 44 million Americans with student loan debt, only 473 borrowers sought bankruptcy relief for their student loans and only three borrowers had their loans cancelled by a judge. 

Additionally, Durbin’s amendment includes a provision preventing federal funds from being provided to a for-profit college if that institution receives more than 85 percent of its revenue from federal sources including Department of Veterans Affairs GI Bill and Department of Defense Tuition Assistance funds. Currently, for-profit colleges are able to receive 90 percent of their revenue from federal sources, but non-Title IV funds – like GI Bill and Tuition Assistance – are not counted. This incentivizes for-profit colleges to aggressively recruit veterans and servicemembers in order to receive more than 90 percent of their revenue from federal taxpayers while remaining compliant with the law. Durbin has introduced legislation, known as the POST Act, to permanently address this.