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New Fed chair doesn’t understand why student debt can’t be discharged in bankruptcy

The new chairman of the Federal Reserve questioned why struggling borrowers can’t discharge their student loans in bankruptcy.

“Alone among all kinds of debt, we don’t allow student loan debt to be discharged in bankruptcy,” Jerome Powell told members of the Senate Banking Committee Thursday. “I’d be at a loss to explain why that should be the case.”

Powell’s comments came in response to a question from Senator Brian Schatz, a Democrat from Hawaii, about whether high levels of student debt create a drag on the economy. More than 40 million Americans hold nearly $1.4 trillion in outstanding student loans.

While Powell noted that, in general, policymakers should foster the idea that Americans can borrow to invest in themselves, he said it’s important that borrowers understand the nature and risks of borrowing, and expressed concern about the treatment of student loans in bankruptcy.

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