Republican Tax Plan May Expand Dischargeability of Private Student Loan Debt

In an application of the law of unintended consequences, the Republican plan to eliminate the deduction for student loan interest may render private student loans subject to discharge in bankruptcy.  

In 2005, Congress amended 11 U.S.C. Sec. 507(8) to add the following category of non-dischargeable debts:

any other educational loan 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

A "qualified education loan" is one where the interest is tax deductible.  The amendment had the effect of making private student loans non-dischargeable if the interest could be deductible.

If Congress repeals the definition of  "qualified education loan" as part of the process of eliminating the deduction for student loan interest,   there would be no corresponding provision in the tax code for Sec. 507(a)(8)(B) to refer to.  In that case, Courts could find that the language added in 2005 does not refer to anything and is a null set.   Of course, Court could try to apply Congressional intent and apply the non-existent provision of the tax code as though it were still there.   If this passes, it will raise some interesting issues. 

UPDATE:  Congress did not repeal the deduction for student loan interest.   See here.