Just over a week after President Joe Biden unveiled a plan to forgive $10,000 in federal student loan debt for most borrowers and reform the income-based repayment program, his administration has was reprimanded Thursday for her continued efforts to deny bankruptcy relief to some of the nation’s most desperate student debtors.
“Those who continue to struggle with student debt need updated guidance on undue hardship.”
In a letter Sent to Attorney General Merrick Garland, Sen. Elizabeth Warren (D-Mass.) asked about the status of the Justice Department’s “work to update guidance on how it handles claims for undue hardship of student borrowers in bankruptcy proceedings”.
“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,” Warren wrote, “it is essential that you publish and implement these updated guidelines without delay”.
Although Biden spent years as a senator side with the lenders and making it more difficult for Americans to reduce their student loan repayment obligations in court, it promised last year to “allow student debt to be relieved in the event of bankruptcy,” which would help give overstretched borrowers a fresh financial start.
Nevertheless, as The lever first reported In early February, Biden administration officials moved to overturn a federal judge’s decision to eliminate nearly $100,000 in student debt held by Ryan Wolfson, 35, an epileptic man struggling to find a job. full time.
In response to public outcry, the Ministry of Education announcement that it would withdraw its notice of appeal in the Wolfson case. The agency added that “any borrower in adversarial bankruptcy proceedings may seek and receive a stay” during the department’s review of current policies, which was In progress since July 2021.
Less than a week later, however, the Biden administration filed another notice of appeal in an attempt to block a federal judge’s decision to award Monique Wheat – a mother of three with an annual income of ‘about $21,000 – over $100,000 in student debt relief, like reported by The lever.
Following another round of backlash, the Department for Education also dropped its appeal in Wheat’s case, prompting investigative journalist Julia Rock to ask, “Does this signal a change in policy at the agency?
While welcoming the pair of cancellations, a coalition of progressive advocacy groups urged Education Secretary Miguel Cardona to immediately stop fighting countless others seeking to pay off their student debt in court bankruptcy, writing that his department is “moving slowly to implement” promised reforms. and “does not have a full understanding of the cases currently pending”.
As Warren’s new letter to Garland explains, it follows a March investigation in which she “joined colleagues to request information about how the DOJ handled hardship claims from student borrowers during bankruptcy hearings”.
“Your June 2022 response to this request,” Warren wrote, “indicated that the DOJ and the Department of Education (ED) are “collaborating to develop guidelines for implementation. [the undue hardship standard] in a more consistent and streamlined manner,” and provided a copy of a separate DOJ guidance for U.S. attorneys’ offices, issued September 2021 and updated April 2022, on accepting the suspension of pending student loan release procedures.
In response to her July request for “a staff-level briefing on the delay in issuing the updated undue hardship guidelines,” Warren noted, she received only “a brief email containing no additional details on the status of the guidelines”.
“Months have passed since my March 2022 application and borrowers are still waiting for these new undue hardship guidelines,” she added. “This is a serious problem for many borrowers who are bankrupt or on the verge of bankruptcy.”
The Massachusetts Democrat continued:
As noted in the March 2022 letter, Congress and the courts have nearly eliminated bankruptcy as an option for Americans seeking freedom from crippling student debt. The bankruptcy code’s undue hardship exception has been interpreted narrowly by the courts, with most courts requiring borrowers to prove that their inability to repay the loan would persist in the future, that they could not not maintain a “minimal” standard of living if they were forced to repay the loan and made good faith efforts to repay the loans. In practice, this standard has proven so difficult to meet that most borrowers do not even attempt to repay their student loans through bankruptcy.
Those pursuing undue hardship claims face aggressive legal challenges from the federal government that fails to recognize borrowers’ difficulties navigating the student loan system. In particular, the current 2015 guidance assumes that a borrower can easily access income-based or income-driven repayment. [IDR] plan and that their failure to enroll in the IDR may constitute a bad faith effort to repay their loans. This is despite a well-documented history of gross mismanagement of the IDR program by service agents, including erroneous payments, failure to update and correct borrower records, misleading borrowers about their options and even drive IDR-eligible borrowers away from these programs. As a result, only 157 people had ever received IDR forgiveness through January 2021 according to a Government Accountability Office report, even though more than 4.4 million borrowers have been in repayment for at least 20 years. years and should apparently have access to loan forgiveness under the IDR. .
“Those who continue to struggle with student debt,” Warren wrote, “need updated undue hardship guidance that, among other things, reflects the realities borrowers have faced in accessing and paying payments under the IDR”.
“The DOJ must prioritize updating student bankruptcy guidelines,” she added, “and provide clear answers on the status of its plans to process bankruptcy discharge applications.” .
To this effect, the senator asked Garland to answer the following questions by September 15:
- Please provide a detailed update on the status of DOJ discussions and any updates to regulations or guidance for processing undue hardship bankruptcy discharge applications for student borrowers.
- Since the DOJ issued stay guidelines on September 7, 2021, how many borrowers have requested a DOJ stay? How many have benefited from such a stay?
- Will the DOJ guidelines remain in place until the DOJ and ED release new policies on canceling student loans through the bankruptcy process?
- Since September 7, 2021, in how many cases have judges granted borrowers student loan discharges? In how many of these cases did the DOJ appeal the discharge? Why did the DOJ appeal these decisions? What measures does the DOJ have in place to ensure that it does not cause unnecessary hardship through these appeals?
Meanwhile, Republican attorneys general, business advocacy groups and GOP lawmakers, including Sen. Ted Cruz of Texas, are plotting to sue the Biden administration over its recently unveiled student debt cancellation plan. .
If one of these lawsuits is successful – something legal experts say is a real possibility given the right-wing makeup of the federal court system all the way to the US Supreme Court – “bankruptcy reform”, The lever pointed out, “could become even more crucial in relieving debtors of their burdens”.