More student-loan borrowers are taking advantage of an updated route to get rid of their debt in bankruptcy court, top Democratic senators say
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- The Biden administration released new guidance in 2022 on discharging student loans in bankruptcy.
- New data obtained by some lawmakers shows more student-loan borrowers taking advantage of that new process.
- Elizabeth Warren led some of her colleagues in calling for bolstered outreach on the bankruptcy process.
An updated process for student-loan borrowers to get rid of their debt in bankruptcy court is working, a group of Democratic senators said.
On Monday, Sens. Elizabeth Warren and Dick Durbin led Sens. Raphael Warnock and Sheldon Whitehouse in sending a letter — first viewed by Business Insider — to the Justice and Education Departments regarding the status of recent guidance intended to make it easier for borrowers to have success in bankruptcy court.
Discharging student loans in bankruptcy court has been historically difficult. Borrowers had to prove a standard known as "undue hardship," in which they cannot maintain a minimal standard of living, their circumstances aren't likely to improve, and they have made a good-faith effort to repay their debt.
That standard had been very difficult to meet for years, which is why the Biden administration released new guidance in November 2022 to streamline the process. The guidance included clearer guidelines borrowers could follow to prove undue hardship, along with a self-attestation form that allowed the Education and Justice Departments to process borrowers' requests faster without investigations.
Previously unpublished data obtained by the Democratic lawmakers showed a growing number of borrowers have accessed the new process over the past year. The letter states that nearly 900 borrowers sought out the new bankruptcy process in less than eight months in fiscal year 2024, bringing the total to 1,520 since the guidance was first implemented.
This builds on data released by the Justice Department in July, which found that student-loan borrowers filed 588 new cases from October 2023 to March 2024 — a 36% increase from the prior six-month period.
The lawmakers also found that 85% of borrowers taking advantage of the new guidance received either a full or partial discharge of their balances.
"For years, borrowers came to correctly believe that there was essentially no way out of the crushing weight of student loans, even through bankruptcy," the lawmakers wrote. "ED and DOJ have changed this narrative and you should continue to educate potentially qualifying borrowers, their attorneys, and other individuals and organizations who work to help borrowers."
While the data shows improvement, the process continues to be slow-moving. The lawmakers requested that the Biden administration provide more detail on how the agencies are communicating the bankruptcy process to borrowers, along with updated information on how long the process takes once a borrower files for bankruptcy.
Lawmakers have also introduced legislation to make the bankruptcy process easier for student-loan borrowers. On September 30, top Democrat on the House Judiciary Committee Jerry Nadler reintroduced the Student Borrower Bankruptcy Relief Act of 2024, which would remove the undue hardship requirement to reduce the legal burden on borrowers.
"This legislation is a crucial step in addressing the pervasive injustice of student loan debt that ensnares millions of Americans in a cycle of financial hardship," Nadler said in a statement.
Have you gotten your student loans discharged through bankruptcy? Share your story with this reporter at asheffey@businessinsider.com.
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Tuesday, October 29, 2024
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