House Judiciary Subcommittee Hearing Focuses on Treatment of Student Loans in Bankruptcy

Yesterday, June 25, 2019, the House Judiciary Subcommittee on Anti-Trust, Commercial and Administrative Law held a hearing, “Oversight of Bankruptcy Law and Legislative Proposals.” The hearing was billed as covering several pieces of legislation, but about 75 percent of the testimony and questions by Subcommittee members was about making it easier to discharge student loans, focused on a bill by Judiciary Committee Chairman Jerry Nadler (D-NY) (H.R. 2648).

The hearing consisted of two panels. The first featured Members of Congress: Sen. Dick Durbin (D-IL), (who has introduced a student loan discharge bill, S. 1414) and Reps. Nydia Velazquez (D-NY), Ben Cline (R-VA), and Antonio Delgado (D-NY).

The second panel consisted of representatives from various bankruptcy attorney and advocacy groups, the CFPB, and the University of California-Irvine School of Law.  Sen. Durbin’s legislation, like Chairman Nadler’s, would make government and private education loans dischargeable in bankruptcy without requiring debtors to show that repayment would cause undue hardship to them or their dependents, as has been the case since 1998 for loans made by a government or non-profit and since 2005 for all education loans.

The first panel mainly consisted of the Members of Congress telling stories conveyed to them by constituents, in Durbin’s case about how they wanted to discharge student loan debt or, for the three House members, file for bankruptcies that would help family farmers, small businesses and veterans. Durbin also criticized for-profit schools, claiming that a disproportionate amount of student loan defaults are from them.

The second panel’s introductory statements ranged from generic comments about why it should be easier to discharge both federal and private student loans, to financial hardship that veterans often face when returning from combat, to further comments about declaring bankruptcy for family farms and small businesses.

The UC Irvine professor, Dalie Jimenez, co-authored a paper in 2018 that says private student loan interest rates didn’t fall immediately after the 2005 change to the bankruptcy law that made private loans subject to the undue hardship test. She energetically advocated for elimination of the undue hardship requirement.

The witness who spoke the most about private student loans was Ed Boltz, from the National Association of Consumer Bankruptcy Attorneys (around the time 1:13:50 in the recording linked below). Similar to the claims made by Jimenez in her paper, Boltz alleged that making it more difficult to discharge private student loans did not result in lower interest rates and “there is no evidence of strategic default, before or after” the change in 2005.  When Jimenez spoke, she attacked private student lenders as well, saying that since 2006, private student lenders have increased their requirements for borrowers to have cosigners.

During questions from Members, several committee Democrats also criticized the private student loan industry but members of both parties also pointed out in several instances that the federal government holds the majority of student loan debt. Several Republican members such as Rep. Kelly Armstrong (R-ND) stressed that the root problem is not student loan debt, but the increasing cost of tuition, and that reigning it in should be central to the policy debate around the student loan crisis.

Subcommittee Ranking Member Jim Sensenbrenner (R-WI) asked why borrowers with large law school or medical school debt wouldn’t simply declare bankruptcy as soon as they graduated in order to avoid paying their loans.

Many committee Democrats talked about how women and borrowers of color struggle disproportionately with student loan debt, and also praised the Durbin-Nadler bill.

The high interest in student loan issues during the hearing and the fact that the chairman decided to introduce legislation himself indicates that action can be expected on the legislation probably this year.  Nadler has one Republican cosponsor, John Katko (NY), and 19 Democratic cosponsors.  The bill will likely pass the House but its prospects in the Senate are unclear. 

·         A full recording is available here.