Commentary: Legislation Aims to Tackle the Student Loan Crisis in Bankruptcy Court

Commentary: Legislation Aims to Tackle the Student Loan Crisis in Bankruptcy Court

ABI Bankruptcy Brief

May 16, 2019

ABI Bankruptcy Brief

Commentary: Legislation Aims to Tackle the Student Loan Crisis in Bankruptcy Court

Legislation introduced last week seeks to allow student loans to be discharged in bankruptcy without the difficulty of proving the "undue hardship" standard, according to a Washington Post commentary. The legislation has drawn bipartisan support with two Republican co-sponsors in the House, including Rep. John Katko (R-N.Y.), who introduced a similar bill in the last session of Congress. It would, as sponsor House Judiciary Chair Jerrold Nadler (D-N.Y.) put it in a statement, “ensure student loan debt is treated like almost every other form of consumer debt." In the Senate, Sen. Elizabeth Warren (D-Mass.), along with fellow presidential candidates Sens. Bernie Sanders (I-Vt.), Kamala Harris (D-Calif.) and Amy Klobuchar (D-Minn.), are all co-sponsoring companion legislation. Americans owe a collective $1.5 trillion in student loan debt, an amount that’s increased from $90 billion over the past two decades, according to the commentary. In 2018, more than two-thirds of college graduates graduated with student loans. The average amount borrowed (from all sources) by a 2018 graduate is just under $30,000. The burden is impacting people from early adulthood to those in retirement: Some senior citizens are using their Social Security checks to pay back student loan bills, according to the commentary. Restoring bankruptcy could protect borrowers in another way, too, by potentially acting as a check on the careless treatment of debtors by student loan servicers, according to the commentary. In 2017, the Consumer Financial Protection Bureau sued Navient, claiming that the student loan giant repeatedly did not tell borrowers experiencing financial difficulties about income-based repayment options and instead pushed them into forbearance, a strategy that resulted in further interest charges and increased the amount borrowers owed.

The issue of student loan debt and bankruptcy is the first problem addressed in the Final Report of the ABI Commission on Consumer Bankruptcy. Click here to download your copy.

Trump Readies Up to $20 Billion More in Aid to Rescue Farmers from Trade War

The Trump administration could make as much as $20 billion available to farmers in a second round of assistance designed to help offset losses from China's latest retaliatory tariffs, Agriculture Secretary Sonny Perdue said yesterday, Politico reported. The second installment of trade aid is being modeled after the one last year. USDA pledged up to $12 billion in assistance for 2018 production, mostly in the form of direct payments to farmers stung by retaliatory duties, as well as commodity purchases. Perdue said that the second round of assistance would likely include more direct payments and commodity purchases. “Our calculations initially probably range between $15 and $20 billion,” he said of the estimated economic damage to farmers and the scope of the potential aid package, but he reiterated that many details are still being decided. In terms of timing, Perdue didn’t give an estimate of when the plan would be announced, but he said USDA was “expediting” its work at President Donald Trump’s request. The secretary said the program would comply with WTO limits on agricultural subsidies.

Slowdown in U.S. Housing Market Is Helping Landlords Raise Rents

Data from Zillow released yesterday shows that home-price appreciation continued to slow in April from a year earlier, driven in part by softening West Coast metros like San Jose and Seattle, Bloomberg News reported. The company also reported the first nationwide monthly price dip in more than seven years — albeit just 0.1 percent. At the same time, rent growth accelerated, climbing by 2.6 percent on an annual basis after a lull in 2018. More broadly, the challenge for the U.S. housing market is scarcity. As millennials — one of the largest U.S. generations — reach prime homebuying age, they’re finding that the supply of entry-level houses hasn’t nearly kept pace with their numbers. That could force them to rent for longer as they save up to buy the homes that are available, Olsen said.

U.S. Corporate Pension Funding Level Rises to 91.4 Percent in April

Consulting firm Milliman said that the 100 largest U.S. corporate defined benefit pension plans’ funded status increased $29 billion to 91.4 percent in April from 89.7 percent at the end of March, spurred by strong investment gains and a rise in the benchmark corporate bond interest rates used to value pension liabilities, Chief Investment Officer Magazine reported today. April’s healthy 1.09 percent investment gain increased the plans’ aggregate asset value by $13 billion to $1.536 trillion at the end of April. Meanwhile, the plans’ aggregate deficit fell to $145 billion from $174 billion at the end of March, a result of an increase in the benchmark corporate bond interest rates. The projected benefit obligation for the plans decreased $16 billion during April to $1.681 trillion due to a seven-basis-point increase in the monthly discount rate in March. Over the last 12 months, the cumulative asset gain for the pensions has been 5.19 percent, and the funded status deficit has grown by $5 billion. Milliman said the main reason the funded status deficit worsened was because of a decline in discount rates over the past 12 months.

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New on ABI’s Bankruptcy Blog Exchange: Small-Business Lending Is Changing Fast

Former SBA head Karen Mills said that the forces reshaping small-business lending are also leading to “a moment of reckoning” for small banks, according to a recent blog post.

To read more on this blog and all others on the ABI Blog Exchange, please click here.

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