Discharging student loan debt in bankruptcy can be very difficult for most borrowers. That means that many Americans have no way out from under crushing student loan debt. The new chairman of the Federal Reserve discussed the issue and addressed opportunities to make it easier for people with unmanageable student loans to file bankruptcy, read more below.

This piece was originally published at MarketWatch

 

Congress has never defined ‘undue hardship’ for student debt.

The new chairman of the Federal Reserve questioned why struggling borrowers can’t discharge their student loans in bankruptcy.

“Alone among all kinds of debt, we don’t allow student loan debt to be discharged in bankruptcy,” Jerome Powell told members of the Senate Banking Committee Thursday. “I’d be at a loss to explain why that should be the case.”

Powell’s comments came in response to a question from Senator Brian Schatz, a Democrat from Hawaii, about whether high levels of student debt create a drag on the economy. More than 40 million Americans hold nearly $1.4 trillion in outstanding student loans.

While Powell noted that, in general, policymakers should foster the idea that Americans can borrow to invest in themselves, he said it’s important that borrowers understand the nature and risks of borrowing, and expressed concern about the treatment of student loans in bankruptcy.

Congress has never defined ‘undue hardship’ for student debt

Powell’s comments come as the Department of Education is looking for input on the way student loans are treated in bankruptcy. Congress passed a series of laws beginning in the 1970s that banned borrowers from discharging their student loans in bankruptcy unless they’re experiencing “undue hardship.” Congress never defined that phrase, but the courts have interpreted it to mean a relatively high standard…

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