Fresh Start Through Bankruptcy Act of 2021: Student Loan Reform

fresh start through bankruptcy act of 2021 bankruptcy for student loans

Fresh Start Through Bankruptcy Act of 2021: Bankruptcy for Student Loans

Student Loan forgiveness may be an option soon in bankruptcy

2022 update: Fresh Start Through Bankruptcy Act of 2021 is still in committee, and nothing appears to be happening with it. However, the Biden administration just gave the Justice Department and Department of Education guidance to make it easier to discharge student loans in bankruptcy. Unlike the FSTBA, the Biden plan doesn’t require anything of the new Congress.

The Fresh Start Through Bankruptcy Act of 2021 was introduced into the Senate this week. What’s startling about this is that it’s a bipartisan bill, helping its future.  The impact of the Fresh Start bill (or FSTBA) is that it would provide student loan forgiveness in bankruptcy.  Bankruptcy for student loans hasn’t been an option for decades now, being a massive burden. This student loan bankruptcy reform would change that.

Bill Summary

If the Fresh Start bill becomes law, it would eliminate student loan debt in bankruptcy for those  student loans that were first due ten years prior.  The undue burden test would apply for those newer than ten years. It’s still going to be tied to the means test, making a Chapter 13 a good solution for those who can afford to pay some, but not all.

In short,  bankruptcy for student loans is on the table. But as of August 2021, student loan reform is still in the future. Write or call your senator and if/when it passes, contact your member of Congress. The Fresh Start bill still needs to become enacted into law. Now that student loan forbearance is set to end in 2022, perhaps Congress can get busy on this.

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Deeper Dive into FSTBA

If you’re interested to learn more about the text of this student loan forgiveness bill and more precise information how it would work, I did a much more detailed write-up on the Fresh Start Through Bankruptcy Act of 2021 here.