LOAN Act
Bill: H.R.1143 | Sponsor: Rep. Kildee, Daniel T. (D-MI)
Policy area: Finance and Financial Sector

Summary:
Lenders Offer Assistance Now Act or the LOAN Act
This bill requires the discharge of a private education loan in the event of the student borrower's disability. Such a discharge is not considered income for tax or other purposes. Additionally, the bill prohibits the automatic default of a private education loan due to the disability of a loan cosigner.
Furthermore, the bill generally permits the discharge of student loans in bankruptcy. Under current law, student loans are not dischargeable in bankruptcy unless repayment would be an undue hardship to the debtor and the debtor's dependents.

To amend the Truth in Lending Act to modify obligations relating to 
private education loans due to the disability of a cosigner or borrower 
   of the loan, to amend title 11 of the United States Code to make 
          student loans dischargeable, 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 ``Lenders Offer Assistance Now Act'' 
or the ``LOAN Act''.

SEC. 2. DISABILITY OF A COSIGNER OR A BORROWER OF A PRIVATE EDUCATION 
              LOAN.

    (a) In General.--Section 140(g) of the Truth in Lending Act (15 
U.S.C. 1650(g)) is amended--
            (1) in paragraph (1), by striking ``bankruptcy or death'' 
        and inserting ``bankruptcy, death, or disability''; and
            (2) by adding at the end the following new paragraphs:
            ``(3) Discharge in case of disability.--A lender that 
        extends a private education loan shall discharge the student 
        obligor's liability on the loan if a student obligor 
        experiences a disability.
            ``(4) Disability defined.--In this subsection, the term 
        `disability' means a permanent and total disability, as 
        determined in accordance with the regulations of the Secretary 
        of Education under section 437(a) of the Higher Education Act 
        of 1965 (20 U.S.C. 1087(a)), or a determination by the 
        Secretary of Veterans Affairs that the individual is 
        unemployable due to a service-connected condition.''.
    (b) Tax Treatment of Discharge.--Section 108(f)(5)(A) of the 
Internal Revenue Code of 1986 is further amended by striking ``or'' in 
clause (ii), by redesignating clause (iii) as clause (iv), and by 
inserting after clause (ii) the following new clause:
                            ``(iii) pursuant to paragraph (3) of 
                        section 140(g) of the Truth in Lending Act, 
                        or''.
    (c) Impact on Certain Programs.--Discharge of a private education 
loan due to disability of a borrower under paragraph (3) of section 
140(g) of the Truth in Lending Act, as added by subsection (a), shall 
not be regarded as income and shall not be regarded as a resource for 
purposes of determining the eligibility of the borrower of such loan 
(or the borrower's spouse or family) for benefits or assistance, or the 
amount or extent of benefits or assistance, under any Federal program 
or under any State or local program financed in whole or in part with 
Federal funds.
    (d) Applicability.--The amendments made by this section shall apply 
to private education loan agreements entered into on or after the date 
that is 180 days after the date of enactment of this Act.
    (e) Private Education Loan Defined.--In this section, the term 
``private education loan'' has the meaning given in section 140(a) of 
the Truth in Lending Act (15 U.S.C. 1650(a)).

SEC. 3. EXCEPTION TO DISCHARGE.

    (a) In General.--Section 523(a) of title 11, United States Code, is 
amended--
            (1) by striking paragraph (8); and
            (2) by redesignating paragraphs (9) through (14B) as 
        paragraphs (8) through (14A), respectively.
    (b) Conforming Amendments.--Title 11, United States Code, is 
amended--
            (1) in section 704(c)(1)(C)(iv)(I) by striking ``(14A)'' 
        and inserting ``(14)'';
            (2) in section 1106(c)(1)(C)(iv)(I) by striking ``(14A)'' 
        and inserting ``(14)'';
            (3) in section 1202(c)(1)(C)(iv)(I) by striking ``(14A)'' 
        and inserting ``(14)''; and
            (4) in section 1328(a)(2) by striking ``(8), or (9)'' and 
        inserting ``or (8)''.
    (c) Effective Date; Application of Amendments.--
            (1) Effective date.--Except as provided in paragraph (2), 
        this section and the amendments made by this section shall take 
        effect on the date of the enactment of this Act.
            (2) Application of amendments.--The amendments made by this 
        section shall apply only with respect to cases commenced under 
        title 11 of the United States Code on or after the date of the 
        enactment of this Act.
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