While the Biden administration’s new student loan bankruptcy policy is making life easier for some people, it’s reportedly making it harder for others.
Back in 2022, the Department of Justice and the Department of Education announced a new policy designed to make it easier for Americans with student loan debt to file for bankruptcy.
According to consumer attorneys who spoke with CNBC, the policy is, to its credit, working like a charm.
“We have gotten forgiveness for a number of clients under the new bankruptcy changes,” Malissa Giles, a consumer bankruptcy lawyer in Virginia, said. “The discharge is life changing for them and their families.”
Student loans are now easier to discharge in bankruptcy, attorneys say: It’s ‘life changing’ https://t.co/0HCz9xhymz
— CNBC (@CNBC) March 12, 2024
But is this necessarily a good thing?
“Previously, it was difficult, if not impossible, for most people to part with their education debt in a normal bankruptcy proceeding,” CNBC notes.
Why? Because of justified concerns that students would rack up debt and then try to skip out of paying it by just filing for bankruptcy.
As a result, “policymakers over the years had added extra stipulations for the discharge of student loans in bankruptcy,” including that “[b]orrowers needed to prove ‘undue hardship,’ or a ‘certainty of hopelessness.'”
this made it much harder for struggling Americans to discharge debt, including student loans. directly contributing to today’s student loan crisis
another ‘successful’ bipartisan effort Biden and other Dems voted for
making the rich richer and the rest of us poorer. as always https://t.co/hfISP2eV5M
— atra (@_bilaire) March 10, 2024
The new Biden administration policy bypasses these stipulations by treating “student loans more like other types of debt in bankruptcy court.”
“Student loan borrowers can [now] fill out a 15-page form, detailing their financial struggles and making their case for a mulligan,” CNBC notes.
“While the government used to fight discharge aggressively in almost every case, there is now a policy to agree when the borrower can show financial need and a history of good faith efforts to pay the loans,” Latife Neu, a bankruptcy lawyer in Seattle, said.
“I’ve helped several people take advantage of the expanded ability to discharge their student loans in bankruptcy,” she added.
But critics say this is unfair to those Americans who repaid their student loans or never got student loans to begin with.
It is forcing me to pay Debt i don’t own
— Joseph gribble (@Mightykingjoe) March 14, 2024
Why should society pay for your bad choices?
— Dubious Legality (@Zaiken64) March 8, 2024
Tax payers and those who paid off school loans the right way are PISSED
— HatTrick (@lotzof_gas) March 14, 2024
Just how popular is this policy regardless of the critics?
“According to the government departments, in the first 10 months of the new policy student loan borrowers filed more than 630 bankruptcy cases – which was a ‘significant increase’ from recent years,” the Daily Mail notes.
When the DOJ and DOE announced the policy last November, Associate Attorney General Vanita Gupta said the goal was to implement a “better, fairer, more transparent process for student loan borrowers in bankruptcy.”
“Congress may have set a higher bar for granting student loan discharges during bankruptcy, but in practice that bar has become very difficult for deserving borrowers to clear,” U.S. Undersecretary of Education James Kvaal added.
“After decades of inaction in Washington, our Department of Education team was determined to partner with the Justice Department to craft clearer, fairer, and more practical standards to guide recommendations for student debt discharges during bankruptcy proceedings. This guidance is an important step toward helping struggling borrowers, many of whom never completed college or were misled into debt by dishonest schools,” he continued.
That said, bankruptcy isn’t recommended for everybody, especially since it can stay on one’s credit report for up to 10 years, making it significantly difficult to rent an apartment, buy a home, or secure another loan.
Speaking with CNBC, higher education expert Mark Kantrowitz recommended that most student loan borrowers look elsewhere for relief options.
“Federal student loan borrowers have several ways to reduce their debt burden, including income-based plans with $0 monthly payments and economic hardship and unemployment deferments. There are also loan relief opportunities for borrowers with disabilities and cancer,” CNBC notes.
All this comes months after the Supreme Court struck down President Joe Biden’s plan to unilaterally cancel up to $20,000 of student loan debt.
In response, the president “started a new effort to forgive education debt,” according to CNBC, and one of the groups that might qualify under these new efforts are those in financial hardship.
“As a result, Kantrowitz said, borrowers might want to wait and see what relief the government is able to deliver before they pursue bankruptcy. The Biden administration may announce its revised forgiveness package as soon as November,” according to CNBC.
Writers and editors can be contacted at [email protected] with feedback, tips, or corrections.
V. Saxena is a staff writer with a decade of experience as a professional writer, and a lifetime of experience as an avid news junkie. He holds a degree in computer technology from Purdue University. Saxena also contributes to BizPac Review.
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