Despite legal opposition, Biden makes it easier to liquidate student loans through bankruptcy
After a federal district judge in Texas put the kibosh on President Biden’s $20,000 student debt relief program, radio host Dan Rea said on his WBZ show Nightside that the Biden administration never thought their debt relief program would actually come to fruition, it was simply proposed as a means to garner the youth vote.
Not only is Rea’s assumption a post facto logical fallacy, but it was further disproven by the Biden administration successfully making it easier for student loan borrowers to discharge their debts through bankruptcy.
Last Thursday, the Department of Justice, in coordination with the Department of Education, announced a new bankruptcy process for those wishing to liquidate their student loans that “will help ensure transparent and consistent expectations for the discharge of student loan debt in bankruptcy, reduce the burden on debtors of pursuing such proceedings, and make it easier for Justice Department attorneys to identify cases where discharge is appropriate.”
“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.”
The new guidance allows debtors to prove undue hardship by filling out an attestation form that takes into consideration present ability to pay, future ability to pay and good faith efforts made to pay in the past.
According to the Department of Justice, “the departments attorneys will apply the factors that courts consider relevant to the undue-hardship inquiry, and determine whether to recommend discharge. Even where the applicable factors may not support a complete discharge, where appropriate, the Justice Department will consider supporting a partial discharge.”
According to New York Time financial reporter Tara Siegel Bernard, “Before 1976, student loans were wiped away in bankruptcy, just like any other form of consumer debt. But some lawmakers were concerned that professionals with expensive degrees and high earning potential could game the system, so they tightened the rules: Borrowers could no longer receive a discharge within five years of when they had to start making loan payments, unless they could show that the debt posed an ‘undue hardship.’”
She added that “In each of the five years before the pandemic, roughly a quarter-million people who had student debt filed for bankruptcy, according to a 2020 analysis by Jason Iuliano, an associate professor of law at the University of Utah. But only a small sliver — less than 1 percent — filed the separate lawsuit, known as an adversary proceeding, to try to have that debt discharged. After reviewing the policy changes, Professor Iuliano was hopeful that the new guidance would encourage more people to try.”
According to NBC.com, a few weeks ago, the Biden administration stopped accepting applications for the $20,000 student debt relief program after the federal judge in Texas shot it down, calling it “unconstitutional.”
On Nov. 14, the federal appeals court for the Eighth Circuit in St. Louis, Missouri, issued a nationwide injunction temporarily barring the program.
Three days later, on Nov. 17, the Biden administration asked in a court filing for the federal appeals court for the Fifth Circuit in Texas to stay their judge’s order pending an appeal by the Department of Justice, adding that the judge “lacked jurisdiction to enter an order,” according to NBC.com.
The filing added that the administration will be filing an application with the Supreme Court to vacate the injunction brought on by the Eighth Circuit court in St. Louis.