The Department of Justice, in close coordination with the Department of Education, today announced a new process for handling cases in which individuals seek discharge from their federal student loans in the event of bankruptcy. The new process will help ensure consistent processing of federal student loan releases, reduce the burden on borrowers in pursuing such procedures, and make it easier to identify cases where release is appropriate. The Associate Attorney General has distributed guidelines outlining the new process to all U.S. attorneys.
Congress has set a higher bar for the discharge of student loan debt relative to other debt – borrowers seeking to discharge their loans through bankruptcy must demonstrate that they will experience “undue hardship” at unless the debt is paid. While the bankruptcy judge makes the final decision on whether or not to grant a discharge, the new process announced today provides Justice Department attorneys with clear standards for recommending discharge to the judge without unnecessarily cumbersome and time-consuming investigations. The new process will also help borrowers who did not think they could obtain bankruptcy relief more easily determine if they meet the criteria to apply for a discharge.
“Today’s guidance outlines a better, fairer and more transparent process for student borrowers in bankruptcy,” Associate Attorney General Vanita Gupta said. “This will make it easier for Justice Department lawyers to identify cases in which we can recommend the release of a borrower‘s student loans. We are grateful to the Ministry of Education for their partnership in the development of this guide.
“Congress may have set a higher bar for granting student loan discharge in bankruptcy, but in practice that bar has become very difficult for deserving borrowers to break,” the deputy said. -US Secretary of Education James Kvaal. “After decades of inaction in Washington, our Department of Education team was determined to partner with the Department of Justice to develop clearer, fairer, and more practical standards to guide recommendations for the release of student debt during bankruptcy proceedings. These tips are an important step in helping struggling borrowers, many of whom never completed their education or were misled by dishonest schools.
As part of the undue hardship analysis, courts look at the borrower’s past, present, and future financial condition. The new process will leverage data from the Ministry of Education and a new borrower-completed attestation form to help the government assess a borrower’s request for release. The Department of Justice, in consultation with the Department of Education, will review the information provided, apply such factors as the courts deem relevant to the undue hardship investigation, and determine whether to recommend to the bankruptcy judge to pay the borrower’s student loan debt.
The Department of Justice and the Department of Education are committed to making this system work for borrowers. The two agencies will continue to monitor how the process unfolds on the ground and will assess the effectiveness of these guidelines after the first year, and beyond if necessary.
By simplifying the process and setting clear standards, the agencies hope to significantly reduce the burden on borrowers and government attorneys, provide a clear path for borrowers to request waivers, and add safeguards to promote consistency and predictability.