Not all debts are dischargeable in a consumer Chapter 7 bankruptcy. A prime example of a kind of debt that usually cannot be discharged in a bankruptcy is a student loan. The reality is that many Texas residents labor under what can fairly be described as being substantial student loan debts. Now, the Biden administration is contemplating the possibility of using executive authority to forgive a certain amount of student loan debt.
Possible executive authority to cancel student loan debt
Reports coming from Washington are that the President has requested the Secretary of Education to consider whether the President has the legal authority to cancel up to $50,000 in student debt per person. Discussion within the administration and among Democrats in Congress has focused on canceling between $10,000 and $20,000 in student loan debt per individual.
Extent of student loan debt in default
Prior to the onset of the COVID-19 pandemic, about 25% of student loan debtors were in default. This number may have gone up somewhat during the course of the pandemic. However, ultimately student loan payments were put on hold for all debtors. These borrowers have not been required to make payments on their loans. Again, this is debt that cannot be relieved through the bankruptcy process.
The impact of forgiving $50,000 in student loan debt per borrower would be significant for a large number of people in the U.S. The overall student loan debt balance in the United States would drop from $1.7 trillion to $700 billion. Many individuals would end up with no student loan balance left to pay if the President takes executive action to eliminate up to $50,000 in debt per individual.