In a bill that could expand bankruptcy laws, U.S. Representative Mary Gay Scanlon (D., Pa.) Is expected to introduce federal legislation Thursday that would allow student debtors financially injured by the coronavirus to file for bankruptcy and pay off their university loans.

“Why do we offer protections to banks and student loan managers? Given where we are now, that has to change, ”said Scanlon, whose district includes Delaware County and parts of southern Philadelphia and Montgomery County.

” The intention [of the bill] is to create bankruptcy relief for Americans already struggling with debts who are affected during this immediate crisis. “

The bill, called the COVID-19 Student 5 Loan Relief Act of 2020, would apply to all Americans affected by the pandemic, whether they hold federal or private student loans. Which does Scanlon the bill is more refined than the legislation introduced by the Student Borrower Bankruptcy Relief Act of 2019 by U.S. representative Jerry Nadler.

Currently, about 44 million Americans are in student loan debt, for a total of about $ 1.6 trillion. About 34 million Americans have filed for unemployment.

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“Would the students play with the system? [by filing when they don’t qualify]? There is no supporting evidence. It’s crazy that this is the case in our current economic climate, even before COVID, ”said Scanlon. The current cosponsors are all Democrats, including Nadler of New York, David Cicilline of Rhode Island, Alma Adams of North Carolina, Jesús “Chuy” García of Illinois and Juan Vargas of California. Scanlon said she hopes to get sponsors from the Republican House. But the bill would need more bipartisan support to pass the Republican-controlled US Senate.

Today, bankruptcy laws generally offer Americans no chance of debt relief for student loans.

Scanlon’s bill would amend Chapter 11 of the U.S. Bankruptcy Code to allow federal and private student loans to be dischargeable for any American whose income has been reduced during or as a result of the COVID outbreak. 19, or who had a main income employee of a family member dies or becomes permanently disabled due to COVID-19.

The full text is available here: https://scanlon.house.gov/UploadedFiles/CSLRA_Bill.pdf.

There are income limits to prevent wealthier Americans from using the bankruptcy option: income must have fallen by at least 20%, and the debtor’s previous year’s income must have been less than 75 $ 000; or the income has decreased by at least 30% and the income for the previous year was $ 75,000 to $ 125,000; or income has decreased by 40% or more and previous year’s income was $ 125,000 or more.

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Henry Sommer, a Philadelphia lawyer on the legislative committee of the National Association of Consumer Bankruptcy Attorneys, said Scanlon “is used to being involved in consumer issues and student loans.”

Prior to 1978, he said, student loans were dischargeable in bankruptcy, “but over time it eroded. In 1997, Congress eliminated the discharge on government loans, unless there was undue hardship, and then in 2005, private student loans also became non-dischargeable. “

The average number of households seeking bankruptcy in a typical year is around 700,000, he said. This is down from around 1.5 million during the 2008-2009 financial crisis.

Student loan debt in Pennsylvania is among the highest per capita in the country, averaging around $ 36,000 per graduate, in part because colleges here are more expensive and receive less state support.

“It’s a huge drag on the economy,” Sommer said. Those in debt include older Americans whose Social Security benefits can be seized to pay off student loans.

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The Scanlon bill “is a moderate remedy compared to forgiveness, for example, because under this bill you must still meet the conditions to file for bankruptcy,” including passing a financial resources test, a- he declared.

Even some of the nation’s biggest student loan managers, including Navient of Wilmington, have voiced tacit support for bankruptcy reform.

“We recognize that some student borrowers face long-term financial challenges,” wrote Navient CEO Jack Remondi in 2017. “That is why, for several years, Navient has recommended bankruptcy reform that would allow federal and private student loans to be discharged in bankruptcy after making a good faith effort to repay.”