It’s a ‘serious problem’ that student loan borrowers still face hurdles in getting out of debt through bankruptcy, says Elizabeth Warren

Massachusetts Senator Elizabeth Warren renews call to restore bankruptcy protection for student loan borrowers.

Last week, President Joe Biden took a major step in bringing relief to millions of borrowers by announcing up to $20,000 in student loan forgiveness for those earning less than $125,000 a year. While this relief is expected to wipe out the balances of 20 million borrowers, the majority will still have debt balances that some may seek to discharge in court through bankruptcy. But it has always been very difficult, and Warren wants Attorney General Merrick Garland to make sure bankruptcy becomes a viable route to bring relief.

“To support the administration’s efforts to overhaul the student loan system and ensure that bankruptcy relief is a viable option for borrowers in serious financial difficulty, it is essential that you release and implement these guidelines updated without delay,” Warren wrote in a letter Thursday to Garland.

To get rid of student debt in court, a borrower must prove the “undue hardship” standard: that he cannot maintain a minimum standard of living, that his situation is unlikely to improve, and that he made a good faith effort to repay their debt. As Insider previously reported, however, this standard is very difficult to prove in court. That’s why Warren wrote a letter to Garland in March asking for an update on how those cases were being handled, but the administration has yet to provide detailed updates.

“Months have passed since my March 2022 application and borrowers are still waiting for these new undue hardship guidelines. This is a serious issue for many borrowers who are in bankruptcy or on the verge of bankruptcy,” wrote Warren. “In practice, this standard has proven so difficult to meet that most borrowers don’t even attempt to repay their student loans through bankruptcy,” she added.

Given the hurdles borrowers have faced through the undue hardship standard, Warren asked Garland to provide an update by September 15, 2022 on the Justice Department’s discussions regarding the undue hardship claims. , the number of times judges have granted loan discharges to borrowers and the reasons these cases may have. been appealed.

The Biden administration has promised to reform the bankruptcy process. Last fall, federal student aid official Richard Cordray told a House education subcommittee that “the process is not working well. It needs to be reformed, and we are committed to do it”. Education Undersecretary James Kvaal later said that “Secretary Cardona has said we want to review this policy, and that’s something that’s ongoing. There’s an interagency process for that, this is not solely at the discretion of the department, and we’re working pretty hard on that, actually.”

But throughout the pandemic, the administration has continued to oppose borrowers’ demand to seek debt relief in court. Other Democratic lawmakers have taken note of bankruptcy concerns, as 27 of them said in April that student loan borrowers had to jump an “unnecessarily high bar” to get rid of their debt in court, and the Democratic Sen. Dick Durbin and GOP Sen. John Cornyn introduced a bill last year that would allow borrowers to seek release from their federal student loans after 10 years and remove the undue hardship requirement.

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