- The Biden administration has pledged to reform the student loan bankruptcy process.
- However, the Department of Education opposes borrowers’ claims in court.
- Advocates are urging the ministry to end opposition until it can implement the reforms.
Rosa Perez filed for bankruptcy on her $78,000 student debt in January.
As a public school counselor, Perez has a monthly income of about $3,400, which she said in a court filing was roughly equal to her monthly expenses. In addition to paying for her daughter’s expenses — she said she received no child support from her daughter’s father — Perez has heart complications that have resulted in large medical bills, she said.
Perez’s spending “is as conservative as possible, and she is still unable to meet her monthly expenses, with no ability to make payment on student loans on their terms,” the filing said.
Perez applied for the discharge of his loans through bankruptcy, but on Monday the Department of Education opposed his request. It was one of the latest examples of how, despite promising reforms, President Joe Biden’s administration continues to fight borrowers in court.
Student borrowers turn to bankruptcy when they feel they have no other way to pay off their debts. Their biggest challenge is the “undue hardship” standard that Biden helped enact in 2005; it requires borrowers to prove that they cannot maintain a minimum standard of living, that their situation is unlikely to improve, and that they have made a good faith effort to repay their debt.
Richard Cordray, the head of the federal office of student aid, told Congress in October that he would work to reform the bankruptcy process and ensure that borrowers who need help can access it. Since then, the Department of Education has prevented several borrowers from getting their debt forgiven.
“The process is not working well. It needs to be reformed … and we are committed to reforming it,” Cordray told a House education subcommittee last fall. “There have already been discussions with the Ministry of Justice. They too are ready to have us revise our approach.”
Now some lawmakers and advocates are concerned, especially as the Department of Education continues to oppose the borrowers’ cases in court.
The Ministry of Education has taken steps to block the cancellation of borrowers’ student loans
In January, 35-year-old Ryan Wolfson was released from nearly $100,000 in student debt after a judge ruled he had proven undue hardship. Two weeks later, the Ministry of Education appealed the case. Just a day later, however, the department withdrew its appeal.
“The Department of Education has publicly indicated that it is reviewing current bankruptcy policies, a process that is ongoing,” a department spokesperson told Insider at the time. “As long as the student loan payment pause remains in effect, any borrower in adversarial bankruptcy proceedings may seek and obtain a stay of proceedings,” the spokesperson added.
Along with the appeals, the department continued to file responses opposing borrowers’ demands to discharge their debt. Thursday, the department opposite a request for release from a 77-year-old former nurse who was unable to obtain loan forgiveness under the Civil Service Loan Forgiveness Scheme, designed to clear civil servants’ debt after 10 years of qualifying payments .
Given that the department oversees federal student loans, its opposition is not unexpected. But while he said he would consider bankruptcy discharges on a case-by-case basis, some advocates and lawmakers want no opposition until the administration implements reforms.
Student Defense, an organization that advocates for the protection of borrowers, recently joined 16 other advocacy groups in calling on the department to “immediately withdraw objections to individuals seeking undue hardship discharges in bankruptcy proceedings during implementation of these reforms.
And Senate Majority Leader Chuck Schumer said in response to a question from the Daily Poster at a news conference in February that he “absolutely” supports a moratorium on objections.
“It’s outrageous that other people can declare bankruptcy, but not students,” Schumer said.
A spokesperson for the Department of Education did not say whether the department would consider ending the opposition, but told Insider that “financially distressed borrowers should be given the option of repaying their student loans through bankruptcy, but too often the process leads to unfair results.The Department of Education has pledged to review its approach to bankruptcy to streamline the process and ensure that borrowers get a fair chance. “
“In the meantime, ED and the Department of Justice are working to ensure the government does not appeal bankruptcy cases where the borrower has proven undue hardship,” the spokesperson added.
Still, advocates hope borrowers won’t continue to face denials on their requests for relief.
“While we strongly welcome the Department’s commitment to changing the way it treats bankrupt student borrowers, in the meantime it continues to oppose furloughs for cancer patients, struggling grandparents and public school employees with serious medical conditions,” Aaron Ament, the president of Student Advocacy, told Insider. “We join Senator Schumer in calling for a moratorium on opposition to bankrupt student borrowers until the department implements new policies that put the interests of student borrowers first.”