Senator Tom Harkin has proposed a bill to make private student loans dischargeable in bankruptcy and to automatically enroll people who owe student loans in income-based repayment. Harkin’s bill, called the Higher Education Affordability Act, contains many other proposals that are less helpful to people who owe student loans now or who will in the future. As Chairman of the Senate Health, Education, Labor and Pensions Committee, Harkin is possibly the most powerful lawmaker recently to propose a remedy as radical as allowing private loans to be discharged in bankruptcy.
In my opinion, the dischargeability proposal makes it less likely that his bill will become law, due in part to the lobbying power of the private student loan industry. Bankruptcy law makes it extremely difficult for student loans of any kind to be discharged in bankruptcy. While there are different repayment options for people with Federal student loans, those with private student loans often have few or no repayment options available to them. Private student loan borrowers are usually required to make high monthly payments without any option for affordable payment amounts.
The other interesting element of Harkin’s proposal, automatically enrolling people in an income-based repayment plan, is a good one because it would eliminate a barrier to many who fail to understand how to gain access to this sort of repayment plan. There are many student-loan borrowers who qualify for this sort of plan who have not taken advantage of it. If income-based repayment is the automatic choice, a lot more eligible people would be paying on their Federal student loans instead of allowing them to go into default.