FRESH START Through Bankruptcy Act
Bill: S.2598 | Sponsor: Sen. Durbin, Richard J. (D-IL)
Policy area: Finance and Financial Sector

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.

To amend title 11, United States Code, to improve the treatment of 
          student loans in bankruptcy, and for other purposes.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 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'' or the ``FRESH 
START Through Bankruptcy Act''.

SEC. 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) of the 
                Internal Revenue Code of 1986, incurred by a debtor who 
                is an individual;''.

SEC. 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', with respect to a 
        covered institution of higher education, means the percentage 
        of student borrowers who are making at least some progress 
        paying down their student loans within 3 years of entering 
        repayment.
            ``(B) The term `covered institution of higher education' 
        means an institution of higher education (as defined in section 
        102 of the Higher Education Act of 1965 (20 U.SC. 1002)) that--
                    ``(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.); and
                    ``(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' means the original 
        principal of a 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' means a Federal 
        Direct PLUS Loan under part D of title IV of the Higher 
        Education Act of 1965 (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)) for each of the 3 fiscal years 
                preceding that date that was equal to or more than 25 
                percent; and
                    ``(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)) for each of the 3 fiscal years 
                preceding that date that was equal to or more than 20 
                percent and less than 25 percent; and
                    ``(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)) for each of the 3 fiscal years 
                preceding that date that was equal to or more than 15 
                percent and less than 20 percent; and
                    ``(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.''.

SEC. 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.
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