Biden administration eases bankruptcy guidelines for student loan borrowers

Nov. 17 (UPI) -- Student loan borrowers will have an easier path to discharging their debt through bankruptcy with new policy changes by the Biden Administration.

The Justice Department announced new guidelines for granting bankruptcy to people carrying student loan debt, in coordination with the Department of Education. The announcement says the updated policy will "ensure consistent treatment" for borrowers seeking to discharge their debt through bankruptcy.

The bankruptcy process will consider undue hardships faced by debtors based on information provided by them. Their ability to pay or pay in the future, and good faith efforts to earn an income, manage their finances and repay their loan will weigh into the decision to discharge the debt. Ultimately, the decision to grant bankruptcy still lies with a bankruptcy judge.

Debtors will be given the opportunity to present evidence of their financial struggles. If they are able to prove their situation warrants the opportunity to be rid of their debt, the judge can grant them bankruptcy.

"Today's guidance outlines a better, fairer, more transparent process for student loan borrowers in bankruptcy," said Associate Attorney General Vanita Gupta. "It will allow Justice Department attorneys to more easily identify cases in which we can recommend discharge of a borrower's student loans. We are grateful to the Department of Education for its partnership in developing this guidance."

Prior to the guideline change it was rare for a student loan borrower to get relief through bankruptcy. A 2020 study by the Duke Law Journal found that about 250,000 borrowers filed for bankruptcy each year. Only about 300 had their debt discharged.

The announcement is a win for people looking for relief from student loans after a setback earlier in the week. A federal judge in Texas ruled to block the Biden-Harris Student Debt Relief plan on Monday. U.S. Under Secretary of Education James Kvaal filed a stay of injunction against the ruling, arguing that denying borrowers the opportunity to receive $10,000 to $20,000 in debt relief will have severe ramifications. These ramifications include an expected swath of delinquencies to come.

Kvaal applauded the change to the bankruptcy policy.

"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," Kvaal said. "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.