White House Unveils New Student Loan Initiative

White House Unveils New Student Loan InitiativePresident Barak Obama announced the signing of the “Student Aid Bill of Rights” before an enthusiastic crowd of over 9,000 supporters at Georgia Tech University. In a similar move, President Obama directed the Treasury Department, Education Department and Consumer Financial Protection Bureau to opine whether or not bankruptcy laws should be changed, or at least relaxed, in this area. President Obama gave the agencies an October 1 deadline for their report.

This Bill of Rights is designed to streamline the loan repayment process and keep delinquent borrowers out of default. The new law also requires lenders to provide clear disclosures to borrowers about repayment terms.

In terms of bankruptcy reform, the administration’s review will most likely focus on private student loans which do not have the same obligations and conditions as federally-guaranteed loans. The President promised that “we’re going to take a hard look at whether we need new laws to strengthen protections for all borrowers, wherever you get your loans from.”

According to the White House, about 40 million people owe an average of $28,400 apiece in student loan debt.

Bankruptcy Laws and Student Debt

The President’s initiative comes about six weeks after Maryland Democrat John Delaney introduced House Resolution 449, which would change Section 523 of the Bankruptcy Code to make all student loans dischargeable in bankruptcy.

Democratic lawmakers are not the only people who have recently questioned the Brunner Rule. Both the Eighth Circuit Court of Appeals in Minnesota and the Tenth Circuit Court of Appeals in Colorado expressed some preference for a totality of the circumstances analysis, which basically states that “if the debtor’s reasonable future financial resources will sufficiently cover payment of the student loan debt – while still allowing for a minimal standard of living – then the debt should not be discharged.” The First Circuit in Maine joined this chorus when it described the Brunner rule as “overkill” that was contrary to standard of a fresh start for bankruptcy debtors.

Republicans have yet to speak out on any of these measures, but by and large, this same group of GOP lawmakers pushed the cleverly-titled Bankruptcy Abuse Prevention and Consumer Protection Act through Congress in 2005. Predictably, lenders also oppose any move to make student debt dischargeable.

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