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Student Loan Forgiveness Without Forgetting the Cost: December ABI Journal Article Examines the Numbers Behind the Proposals

Alexandria, Va. — Nearly 18 percent of American adults have student loan debt, collectively owing a staggering $1.5 trillion. A number of proposals have been advanced to address the issue, and an article in the December ABI Journal takes a closer look at the cost of those possible solutions. “Student loan debt is a problem that is not going to go away on its own,” writes Ed Flynn, a consultant with ABI in his article “Game of Loans: Is Student Debt Forgiveness Coming?” Flynn previously worked for more than 30 years at the Executive Office for U.S. Trustees and the Administrative Office of the U.S. Courts. “Repayments each year barely cover interest and penalties, and the balance owed rises inexorably.”

As student loan debt is currently difficult to discharge in bankruptcy, Flynn dissects political proposals for wiping out student loan debt, and recommendations that would chip away at the issue in bankruptcy court. While positions by Democratic presidential contenders Sens. Bernie Sanders (I-Vt.) and Elizabeth Warren (D-Mass.) would forgive student loan debt, Flynn writes that they would be costly to American taxpayers (an estimated $1.5 trillion for the Sanders plan, $640 billion for the Warren plan). Legislation has also been proposed in both chambers of Congress to make all student loans dischargeable in bankruptcy. “These solutions might be too extreme to gain the necessary support to be implemented,” Flynn writes.

Flynn also estimated the potential amount of student loan debt affected by the recommendations of the ABI Commission on Consumer Bankruptcy to allow three types of student loan debt dischargeable in bankruptcy:

  • Private loans: $123 billion.
  • Loans for the education of someone else (Parent Plus loans): $90 billion.
  • Loans that have been in repayment status for more than seven years:  $300 billion to $400 billion. (“Two-thirds of student debt is either in repayment status or default. Perhaps 30 to 40 percent of that set has been in repayment status for at least seven years, which leads to this rough estimate,” according to Flynn.)

“Absent a blanket forgiveness plan, there is a likelihood that bankruptcy will eventually play a vital role in dealing with student loan debt,” Flynn concludes. “The ABI Consumer Commission has recommended a series of more moderate and targeted proposals to allow certain categories of student loan debt to be dischargeable in bankruptcy. These recommendations might provide the blueprint needed to get this problem under control.”

To obtain your copy of “Game of Loans: Is Student Debt Forgiveness Coming?”, please contact ABI Public Affairs Officer John Hartgen at 703-894-5935 or [email protected].

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ABI is the largest multi-disciplinary, nonpartisan organization dedicated to research and education on matters related to insolvency. ABI was founded in 1982 to provide Congress and the public with unbiased analysis of bankruptcy issues. The ABI membership includes nearly 11,000 attorneys, accountants, bankers, judges, professors, lenders, turnaround specialists and other bankruptcy professionals, providing a forum for the exchange of ideas and information. For additional information on ABI, visit www.abiworld.org. For additional conference information, visit http://www.abi.org/education-events.