Student Loan News: Warren Would Sidestep Congress on Student Loan Forgiveness

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Welcome to Student Loan News, a weekly summary of developments and events affecting college debt in the U.S. Join us each Friday for a look at goings-on that could impact your own student loan situation.

Elizabeth Warren promises relief on first day in office

Democratic presidential candidate and Sen. Elizabeth Warren (D-Mass.) wrote in a Medium post on Tuesday that if elected, she would deliver mass student loan forgiveness on the first day of her presidency.

Citing the Department of Education’s existing authority, Warren said she could do this by circumventing Congress. Specifically, she would direct her appointed Education secretary to “compromise and modify” outstanding federal loans. If it came to pass, 42 million borrowers would see $50,000 fall off their federal student debt.

The Legal Services Center of Harvard Law School independently concluded that Warren’s plan for federal forgiveness would be “a lawful and permissible exercise of the Secretary’s authority under existing law.”

Warren didn’t elaborate on providing separate relief for private student loan borrowers. For more details on Warren’s loan forgiveness plan, check out our previous coverage.

How it affects YOU: If you’re voting with your student debt (or someone else’s) in mind, you might hear politicians’ promises of “free college” and “forgiveness for all” and scoff. Warren’s most recent announcement, though, makes her ambitious plans seem more viable.

Evaluate each presidential candidate’s student loan stance with our handy guide.

Possible game-changing moment in student loan bankruptcy case

During the first week of January, U.S. Navy veteran Kevin Rosenberg saw his $221,385.49 law school student debt discharged (wiped away) via bankruptcy. “I have a chance now to have a life,” Rosenberg told Yahoo Finance after the ruling.

Now, other borrowers might seek that same chance. The potential landmark ruling reinterpreted the Brunner test, which says student debt can only be discharged in cases of “undue hardship.” A New York bankruptcy judge determined that Rosenberg, who isn’t using his law degree for his career, faced such undue hardship in having to repay his six-figure debt.

“One bankruptcy judge’s decision isn’t precedential, but it does certainly fit in a trend of thinking how to apply the undue hardship standard,” law professor Robert M. Lawless told The Wall Street Journal.

How it affects YOU: Lowering the bar for “undue hardship” could help more distressed student loan borrowers discharge their education debt in court. Beyond a trend of sympathetic judges, some lawmakers, such as presidential candidate Sen. Elizabeth Warren, have proposed rewriting the bankruptcy code to ensure borrowers have an easier time achieving such relief.

In the meantime, consider our guide on what happens to student debt when you file for bankruptcy.

Also in the news…

  • The House of Representatives voted Thursday to challenge Education Secretary Betsy DeVos’ changes to the borrower defense to repayment program, which were announced in September 2019. Politico reported, however, that even if the Senate were to agree, the White House would likely veto any legislation that aims to undo DeVos’ plan.
  • The IRS on Thursday announced potentially significant tax relief for federal and private student loan borrowers who received a discharge due to a school closure or cases of fraud, according to The Hill. Borrowers that qualify won’t have to report their forgiven loan amount as taxable income.
  • Late last week, Marketwatch reported on a trending concern of some federal student loan borrowers: that filling out the Free Application for Federal Student Aid (FAFSA) automatically signed them up for a possible U.S. military draft. The misconception spread on social media, but the report explained that the FAFSA has nothing to do with the Selective Service program.
  • The Consumer Financial Protection Bureau (CFPB) filed a lawsuit against several student loan debt-relief companies, the agency announced earlier this month. The CFPB alleged that the companies in question were “obtaining consumer reports illegally, charging unlawful advance fees and engaging in deceptive conduct.”
  • Federal loan borrowers attending Colorado public colleges could receive help on their student loan repayment in the near future. The state is considering legislation that would see taxpayers cover a graduate’s first two years of income-based repayment if they stay in state and find employment, the Denver Post reported. If passed into law, Colorado would join other locales with student loan incentive programs.
  • Borrowers residing in Maryland will share $9 million in tax credits, thanks to the state’s Student Loan Debt Relief Tax Credit program created in 2019, the Associated Press reported Tuesday.
  • A Detroit woman who won a $1 million lottery pot — only after her mother encouraged her to buy a ticket — said she planned to use the winnings to pay off her stress-causing student loan debt (and also to take her mom on vacation), according to the Michigan news site MLive.

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