FRESH START Through Bankruptcy Act

To amend title 11, United States Code, to improve the treatment of student loans in bankruptcy, and for other purposes. 1. Short title This Act may be cited as the Fostering Responsible Education Starts with Helping Students Through Accountability, Relief, and Taxpayer Protection Through Bankruptcy Act of 2021 FRESH START Through Bankruptcy Act 2. Exceptions to discharge Section 523(a) of title 11, United States code, is amended by striking paragraph (8) and inserting the following: (8) for an educational benefit overpayment or loan made, insured, or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or nonprofit institution, or for an obligation to repay funds received as an educational benefit, scholarship, or stipend received from a governmental unit or nonprofit institution, unless— (A) excepting such debt from discharge under this paragraph would impose an undue hardship on the debtor and the debtor’s dependents; or (B) the first payment on such debt became due before the 10-year period (exclusive of any applicable suspension of the repayment period) ending on the date of the filing of the petition; (8A) unless excepting such debt from discharge under this paragraph would impose an undue hardship on the debtor and the debtor’s dependents, for— (A) an obligation to repay funds received as an educational benefit, scholarship, or stipend, other than an obligation described in paragraph (8); or (B) any educational loan, other than a loan described in paragraph (8), that is a qualified education loan, as defined in section 221(d)(1) . 3. Effect of discharge of certain student loans Section 524 of title 11, United States Code, is amended by adding at the end the following: (n) (1) In this subsection: (A) The term cohort repayment rate (B) The term covered institution of higher education (i) is a participant in the Federal Direct Loan Program under part D of title IV of the Higher Education Act of 1965 ( 20 U.S.C. 1087a et seq. (ii) has an enrollment of students that is not less than 33 percent students who have received a loan made, insured, or guaranteed under title IV of the Higher Education Act of 1965 ( 20 U.S.C. 1070 et seq. (C) The term covered student loan (i) the first payment on which became due before the 10-year period (exclusive of any applicable suspension of the repayment period) ending on the date of the filing of the petition; and (ii) used by the debtor to make a payment to a covered institution of higher education on behalf of the debtor for the purpose of attaining an educational benefit. (D) The term Federal Direct PLUS Loan 20 U.S.C. 1087a et seq. (2) If a covered student loan is discharged in a bankruptcy case under this title, the covered institution of higher education to which the debtor of the bankruptcy case made a payment with the covered student loan shall pay to the Department of Education an amount determined in accordance with the following: (A) An amount equal to 50 percent of the amount of the covered student loan that is discharged, if the covered institution of higher education, on the date on which the first payment on the covered student loan became due— (i) had a cohort default rate (as determined under section 435(m) of the Higher Education Act of 1965 ( 20 U.S.C. 1085(m) (ii) had a cohort repayment rate— (I) except for borrowers described in subclause (II), that was equal to or less than 20 percent; and (II) with respect to borrowers who were graduate or professional students who received a Federal Direct PLUS Loan for enrollment at the institution, that was equal to or less than 35 percent. (B) An amount equal to 30 percent of the amount of the covered student loan that is discharged, if the covered institution of higher education, on the date on which the first payment on the covered student loan became due— (i) had a cohort default rate (as determined under section 435(m) of the Higher Education Act of 1965 ( 20 U.S.C. 1085(m) (ii) had a cohort repayment rate— (I) except for borrowers described in subclause (II), that was equal to or less than 25 percent and more than 20 percent; and (II) with respect to borrowers who were graduate or professional students who received a Federal Direct PLUS Loan for enrollment at the institution, that was equal to or less than 40 percent and more than 35 percent. (C) An amount equal to 20 percent of the amount of the covered student loan that is discharged, if the covered institution of higher education, on the date on which the first payment on the covered student loan became due— (i) had a cohort default rate (as determined under section 435(m) of the Higher Education Act of 1965 ( 20 U.S.C. 1085(m) (ii) had a cohort repayment rate— (I) except for borrowers described in subclause (II), that was equal to or less than 30 percent and more than 25 percent; and (II) with respect to borrowers who were graduate or professional students who received a Federal Direct PLUS Loan for enrollment at the institution, that was equal to or less than 45 percent and more than 40 percent. . 4. Effective date; applicability This Act and the amendments made by this Act shall— (1) take effect on the date that is 180 days after the date of enactment of this Act; and (2) apply to a petition filed or amended under this title on or after the effective date under paragraph (1) with respect to a debt for an educational benefit, overpayment, loan, scholarship, or stipend of a debtor.

Summary: Fostering Responsible Education Starts with Helping Students Through Accountability, Relief, and Taxpayer Protection Through Bankruptcy Act of 2021 or the FRESH START Through Bankruptcy Act This bill revises the treatment of student loans in bankruptcy. The bill makes federal student loan debt dischargeable in a bankruptcy proceeding ten years after the first loan payment is due, in addition to being dischargeable at any time in cases of undue hardship, as under current law. Further, institutions of higher education that have at least one-third of their students receiving federal student loans must partially repay a student loan to the Department of Education if that loan is later discharged in bankruptcy. The amount the institution must repay is dependent on the institution's average rates of student loan default and repayment.